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Overconfidence, CEO Awards, and Corporate Tax Aggressiveness
Author(s) -
Kubick Thomas R.,
Lockhart G. Brandon
Publication year - 2017
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12237
Subject(s) - overconfidence effect , propensity score matching , matching (statistics) , accounting , monetary economics , economics , corporate tax , business , psychology , tax avoidance , public economics , tax credit , social psychology , statistics , mathematics
Theory and prior research suggest that overconfidence leads managers to overestimate their own ability to generate returns, leading to riskier corporate policies. We use a novel dataset of media awards as an exogenous shock to overconfidence to test whether award‐winning CEOs adopt more aggressive corporate tax policies. Using propensity score matching and a difference‐in‐difference design, we find strong evidence that firms with an award‐winning CEO exhibit significantly greater tax aggressiveness following the award. Overall, our results suggest that CEO overconfidence has a meaningful impact on corporate tax policy.