The Effects Of Executive Overconfidence On Tax Planning

Executive overconfidence makes the executives trust their ability too much and incline to break the objective limitations,which results in abnormal decisions and affects many aspects of the enterprises' operation.As the indirect tax plays a main role in the tax system of our country,the enterprises face great tax burden and tax planning is a reasonable and legal way to decrease the tax fee and improve the competitive power.As an important part of the decision-making activities,tax planning may be influenced by the executive overconfidence.Besides,product market competition(PMC)is an important external governance mechanism and it can constraint the abnormal behaviors of the executives and decrease the supervision costs.So it may correct the abnormal behaviors caused by the executive overconfidence.This paper analyzes the effects of executive overconfidence on tax planning and the regulating effect of PMC with a sample of the listed companies during 2009~2016.After literature reviewing,the indicators of executive overconfidence and tax planning are determined.A regression analysis to validate the relationship between executive overconfidence and tax planning is the first step.Then to explore the regulating effect of PMC,regression analyses to strong PMC group and weak PMC group are launched.The researches show that there is a significantly positive relationship between managerial overconfidence and tax planning,but the sensitivity between them is affected by the PMC.Compared with the weak PMC,managerial overconfidence produced greater influence on tax planning when the PMC is strong.The researches of the paper can help the companies to improve the internal governance and make contribution to the policy-making of the government.