Does the Past Cast a Shadow over the Present? Evidence from Corporate Tax Avoidance

Abstract

I investigate the effects of CEOs’ work experience on corporate tax avoidance and find that CEOs who experienced a negative firm-wide economic environment (negative work experience) tend to avoid more taxes. Further, I show that the frequency, recency, and length of the negative work experience are positively associated with tax avoidance. The results also indicate that CEOs with negative work experience have less incentive to avoid taxes when their firm obtains external capital and maintains higher liquidity. The findings are robust to propensity score matching analysis. Further analysis suggests that negative work experience has a more profound impact on tax avoidance when CEOs are under greater career pressure. Taken together, the results indicate that CEOs’ work experience has significant explanatory power for tax avoidance outcomes.