EFFECT OF TAX AGGRESSIVENESS ON CEO TURNOVER

Abstract

Resumo This study verifies the influence of corporate tax aggressiveness on the replacement of the Chief Executive Officer ? CEO. The central hypothesis is that managers`managers`tax risk tolerance can be a determinant of CEO turnover in companies listed on the Brazilian stock exchange B3. An efficient tax planning is essential for any organization, being a management duty to avoid paying unnecessary taxes, so the willingness to take tax risks may influence the permanence of the CEO in its role. The research confronts the CEO turnover with three metrics of tax aggressiveness, in the period from 2010 to 2016, ranking results by quintile and identifying the high and low extremes. Control variables reduce the bias of the proposed regression. In two proxies, cash effective tax rate and long-run effective tax rate, there were significant results for low tax aggressiveness and higher CEO Turnover. The results evidence that less tax aggressive CEOs are more likely to be replaced in Brazilian public companies. For managers, the findings reinforce that tax planning and the managers`managers`tax risk tolerance are determinant factors to remain in the position. The results provide some wisdom about the tensions surrounding managers`managers`behavior. Unlike securities misconduct, which harms shareholdersìnterests, the low level of tax aggressiveness gives rise also to adverse effects to CEOs in line with the shareholder-centric view that minimizing tax payments increases firm value. With this perspective, the results provide valuable insights for policymakers, regulators, and tax authorities who aim to understand the incentives and disincentives that either drive or deter corporate tax avoidance. Palavras-chave: Tax Aggressiveness; CEO turnover; Chief Executive Officer; Effective Tax Rate. ABSTRACT This study verifies the influence of corporate tax aggressiveness on the replacement of the Chief Executive Officer-CEO. The central hypothesis is that managers' tax risk tolerance can be a determinant of CEO turnover in companies listed on the Brazilian stock exchange B3. An efficient tax planning is essential for any organization, being a management duty to avoid paying unnecessary taxes, so the willingness to take tax risks may influence the permanence of the CEO in its role. The research confronts the CEO turnover with three metrics of tax aggressiveness, in the period from 2010 to 2016, ranking results by quintile and identifying the high and low extremes. Control variables reduce the bias of the proposed regression. In two proxies, cash effective tax rate and long-run effective tax rate, there were significant results for low tax aggressiveness and higher CEO Turnover. The results evidence that less tax aggressive CEOs are more likely to be replaced in Brazilian public companies. For managers, the findings reinforce that tax planning and the managers' tax risk tolerance are determinant factors to remain in the position. The results provide some wisdom about the tensions surrounding managers' behavior. Unlike securities misconduct, which harms shareholders' interests, the low level of tax aggressiveness gives rise also to adverse effects to CEOs in line with the shareholder-centric view that minimizing tax payments increases firm value. With this perspective, the results provide valuable insights for policymakers, regulators, and tax authorities who aim to understand the incentives and disincentives that either drive or deter corporate tax avoidance.