Top management conservatism and corporate risk strategies: Evidence from managers' personal political orientation and corporate tax avoidance

Christensen, Dane M.; Dhaliwal, Dan S.; Boivie, Steven; Graffin, Scott D.

doi:10.1002/smj.2313

Cited by 288 publications

(257 citation statements)

References 89 publications

(159 reference statements)

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“…The results of this analysis are shown in Model 5 of Table and show that the new CEO's political orientation is negatively related to the pay mix of the prior CEO ( β = −.025, p = .006). Given that firms tend to hire executives with similar political orientation over time (Christensen et al, ), this finding suggests that new CEOs seem to be attracted to firms that offered the prior CEO a pay package that is consistent with the new CEO's risk preferences.…”

Section: Resultsmentioning

confidence: 92%

“…Indeed, research in political science suggests that an individual's political party identification is typically formed in early adulthood and remains relatively constant throughout life (Green, Palmquist, & Schickler, ). Consistent with this notion, Christensen et al (: p. 10) found that, “when executives' political orientation scores from individual election cycles were compared to their lifetime political orientation score, 92 percent of the time both scores were leaning toward the same political party.” Thus, rather than being a reflection of CEOs simply giving to the party in power, giving is quite stable over time.…”

Section: Political Orientation and Ceos' Initial Compensation Packagesmentioning

confidence: 94%

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The influence of CEO risk tolerance on initial pay packages

Graffin

Hubbard

Christensen

et al. 2019

Strategic Management Journal

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Research Summary Based on agency theory, CEOs with greater risk aversion should be given greater incentive‐based compensation to motivate risk taking. We explore whether new CEOs receive initial pay packages that follow this recommendation, or instead receive pay packages that mirror their risk preferences. Rather than finding support for the agency theory perspective, we find that new CEOs are compensated in the way that reinforces their existing risk preferences. Specifically, using a CEO's political orientation to capture relative risk tolerance, we find that conservative‐leaning CEOs receive relatively less performance‐based pay than their liberal‐leaning counterparts. Supplemental analyses suggest this occurs through both a matching and tailoring process, whereby boards offer similar pay packages from CEO‐to‐CEO, but modify them based on differences in risk tolerances. Managerial Summary When designing a new CEO's pay contract, what proportion of the total compensation should be guaranteed versus performance based? To encourage risk taking, most researchers suggest that CEOs with greater risk aversion should have a pay mix that is more heavily weighted toward performance‐based pay. We find that the opposite occurs; new CEOs who are more risk averse tend to receive relatively less performance‐based pay than new CEOs who are more risk tolerant. This appears to occur because CEOs are attracted to firms that offered the prior CEO a pay package that appeals to the new CEO's risk tolerance. Our results also suggest that risk‐seeking CEOs' strategic actions are more strongly influenced by performance‐based pay, while more risk‐averse CEOs seem relatively unaffected by pay mix.

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Section: Resultsmentioning

confidence: 92%

Section: Political Orientation and Ceos' Initial Compensation Packagesmentioning

confidence: 94%

The influence of CEO risk tolerance on initial pay packages

Graffin

Hubbard

Christensen

et al. 2019

Strategic Management Journal

Self Cite

View full text Add to dashboard Cite

show abstract

“…The negative publicity resulted in verbal attacks from members of Parliament, customer boycotts of Starbucks stores, significant drops in the firm's reputation ratings, and numerous store closures (Christensen et al. []). The reputational damage prompted Starbucks to voluntarily pay future taxes and relocate physical offices to the United Kingdom, even though the company had purportedly been in compliance with U.K. tax law (Titcomb []).…”

Section: Background and Hypothesismentioning

confidence: 99%

Public Pressure and Corporate Tax Behavior

Dyreng

Hoopes

Wilde

2016

J of Accounting Research

420

175

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We use a shock to the public scrutiny of firm subsidiary locations to investigate whether that scrutiny leads to changes in firms’ disclosure and corporate tax avoidance behavior. ActionAid International, a nonprofit activist group, levied public pressure on noncompliant U.K. firms in the FTSE 100 to comply with a rule requiring U.K. firms to disclose the location of all of their subsidiaries. We use this setting to examine whether the public pressure led scrutinized firms to increase their subsidiary disclosure, decrease tax avoidance, and reduce the use of subsidiaries in tax haven countries compared to other firms in the FTSE 100 not affected by the public pressure. The evidence suggests that the public scrutiny sufficiently changed the costs and benefits of tax avoidance such that tax expense increased for scrutinized firms. The results suggest that public pressure from outside activist groups can exert a significant influence on the behavior of large, publicly traded firms. Our findings extend prior research that has had little success documenting an empirical relation between public scrutiny of tax avoidance and firm behavior.

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“…Differences in political ideology have been shown to have an important influence on thinking and actions, not only in people's daily lives (Jost, Federico, & Napier, ), but also in the decisions of organizational leaders. Recent work has examined how the political ideologies of executives and top managers influence their managerial and governance decisions and actions (Chin, Hambrick, & Trevino, ; Christensen, Dhaliwal, Boivie, & Graffin, ; Gupta & Wowak, ). Extending this perspective to the arena of financial misconduct, we propose that political ideologies may have an important influence on board members' key decisions and actions through two primary effects: ideo‐attribution and threat management.…”

Section: Theory and Hypothesismentioning

confidence: 99%