The Effect of Managerial Reputation on Corporate Tax Avoidance

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Title: The Effect of Managerial Reputation on Corporate Tax Avoidance
Author: Kim, Jin Wook
Abstract: Prior literature suggests that tax avoidance is an effective way to enhance firm value. However, there appears to be considerable cross-sectional variation in tax avoidance, and it is not clear why some firms do not take full advantage of the tax avoidance opportunities being used by others. This study examines whether managerial reputation, as proxied by high-profile awards to top managers, is helpful in explaining corporate tax avoidance. The empirical results show that, relative to a matched control group, firms managed by a celebrity manager have significantly higher cash and GAAP effective tax rates in the three year period following the manager's first award than preceding the award. This result is consistent with the conjecture that celebrity managers, for fear of being labeled as "poor citizens," engage in less tax avoidance once they have an established reputation.
Date: 2012

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