- Title
- Does Corporate Tax Avoidance Promote Managerial Empire Building?
- Creator
- Shams, Syed; Bose, Sudipta; Gunasekarage, Abeyratna
- Relation
- Journal of Contemporary Accounting and Economics Vol. 18, Issue 1, no. 100293
- Publisher Link
- http://dx.doi.org/10.1016/j.jcae.2021.100293
- Publisher
- Elsevier
- Resource Type
- journal article
- Date
- 2022
- Description
- We examine the association between corporate tax avoidance and empire building using 35,060 firm-year observations from the United States (US) for the period 1991–2015. We build a composite measure of empire building by conducting a factor analysis on four popular empire building proxies used in the literature. We find a positive association between this composite measure of empire building and four proxies used to represent the tax avoidance of sample firms. As our results suggest, agency problems are inflicted upon firms that employ tax avoidance strategies which, in turn, facilitate managerial rent extraction through aggressive growth and accumulation of assets. Furthermore, the relationship of corporate tax avoidance to managerial empire building is found to be more pronounced in companies with weak governance, poor monitoring mechanisms, greater CEO power and those with weak performance in corporate social responsibility (CSR). We also find that empire building-motivated tax avoidance leads to lower firm valuation. Our results remain insensitive even when several robustness tests are employed.
- Subject
- tax avoidance; empire building; agency problems; firm valuation; SDG 17; Sustainable Development Goals
- Identifier
- http://hdl.handle.net/1959.13/1475895
- Identifier
- uon:49685
- Identifier
- ISSN:1815-5669
- Language
- eng
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