Research shows danger to CEOs when firms over or underpay taxes

    Chief executive officers may have little control over how much their companies pay in taxes, but new research shows that their continued employment may be tied to the amount.

    The likelihood of a CEO being fired increases if their firm pays considerably more or less in taxes than similar corporations, according to a new study by University of Tennessee associate accounting professor James Chyz.

    “There has been a maintained hypothesis in the literature that says CEOs might not be able to impact corporate tax outcomes—that it’s unlikely for them to be involved in the day-to-day operations of tax policy,” Chyz says. “Corporate boards are in charge of hiring and firing CEOs, so the fact that we find some evidence that CEO departures are tied to corporate tax policy outcomes suggests that CEOs are being held accountable.”

    To test the link between tax rates and CEO turnover, Chyz used an existing data set of US-based companies covering approximately 15 years.

    The data looks at instances in which a CEO was fired, as opposed to retiring or leaving the job for health reasons. He was able to establish a statistical correlation between a CEO’s being fired and the firm’s paying significantly higher or lower taxes than its peers.

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