The Influence of CEO’s Age and Overconfidence on Firm Tax Avoidance Strategy

Abstract

This study explores the impact of CEO’s physiological and personality traits (age and overconfidence) on corporate tax avoidance strategies collecting data from the listed companies on the three major exchanges in the United States from 2008 to 2017 We use the position of unexercised options which are in the money to examine whether the CEO is overconfident or not Moreover we use four indicators to measure the degree of corporate tax avoidance which are effective tax rate (ETR) cash effective tax rate (CETR) book-tax difference (BTD) and permanent book-tax difference (PER_BTD) Our research purpose is to observe whether the CEO's age affects their degree of overconfidence and we further link the age effect and overconfidence to analyze the relation between CEO and corporate tax avoidance strategy choices The conclusions are the CEO’s overconfident tendency increasing with age and support the conservatism effect Due to lacking of management experience or worrying about the future development of careers younger CEOs tend to be more conservative making the CEO's age positively correlated with overconfidence In terms of company strategies there is no significant correlation between CEO’s age and tax avoidance and overconfidence is significantly positively correlated with tax avoidance If the CEO is overconfident he or she will overestimate tax avoidance benefits or underestimate tax avoidance costs and conduct more tax avoidance activities These results reveal that the CEO’s physiological characteristics will affect their personality traits but only the personality traits are the influencing factors in the corporate strategy choices

Date of Award	2019
Original language	English
Supervisor	Shao-Huai Liang (Supervisor)