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Top management conservatism and corporate risk strategies: Evidence from managers' personal political orientation and corporate tax avoidance
Author(s) -
Christensen Dane M.,
Dhaliwal Dan S.,
Boivie Steven,
Graffin Scott D.
Publication year - 2015
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2313
Subject(s) - biology and political orientation , tax avoidance , conservatism , politics , proxy (statistics) , business , market orientation , corporate tax , ex ante , accounting , marketing , economics , double taxation , finance , political science , law , machine learning , computer science , macroeconomics
We investigate whether managers' personal political orientation helps explain tax avoidance at the firms they manage. Results reveal the intriguing finding that, on average, firms with top executives who lean toward the R epublican P arty actually engage in less tax avoidance than firms whose executives lean toward the D emocratic P arty. We also examine changes in tax avoidance around CEO turnovers and find corroborating evidence. Additionally, we find that political orientation is helpful in explaining top management team composition and CEO succession. Our paper extends theory and research by (1) illustrating how tax avoidance can serve as another measure of corporate risk taking and (2) using political orientation as a proxy for managerial conservatism, which is an ex ante measure of a manager's propensity toward risk . Copyright © 2014 John Wiley & Sons, Ltd.