This paper investigates whether managers that have a propensity for personal tax aggressiveness are associated with tax avoidance at the firm level. Motivated by Dhaliwal, Erickson, and Heitzman (2009) and Hanlon and Heitzman (2009), I construct a measure of personally tax aggressive ("aggressive") managers and determine whether corporate tax avoidance activities increase in their presence. The results of my study indicate that aggressive managers are associated with firm-level tax avoidance. The neoclassical view would suggest that aggressive managers' tax expertise could benefit shareholders through lower tax payments. Since aggressive managers extract their personal tax savings from shareholders, non-tax agency costs potentially increase in their presence. This has implications for the association between aggressive managers and firm value. Using the framework established through the agency view of tax avoidance (Desai and Dharmapala, 2008) I find that on average the presence of aggressive managers is associated with increased firm value. However, consistent with recent research, governance is an important moderating factor whereby firm value in the presence of aggressive managers tends to increase only for relatively better-governed firms.

In this dissertation, I examine two related questions on whether and how tax aggressiveness of firms is associated with shareholder wealth in a new context – mergers and acquisitions (M&A). The first study investigates whether and how the tax aggressiveness of the acquirers and targets affects shareholder wealth. I present the idea of tax aggressiveness transfer whereby the acquirer’s propensity for tax planning applies to its target’s tax function after the change in ownership. I measure the degree of tax aggressiveness transfer using the relative tax aggressiveness of the acquirer and target (i.e., the difference in tax aggressiveness between the two firms). I find that acquisitions of more tax aggressive targets by less tax aggressive acquirers generate significantly lower acquisition gains. I also document weaker evidence that acquisitions of less tax aggressive targets by more tax aggressive acquirers generate higher acquisition gains. That is, the results suggest that the shareholder wealth effects of tax aggressiveness transfer are driven by the value-destroying effect of decreases in tax aggressiveness. Cross-sectional analyses reveal that the acquirer’s governance is a significant determinant of the shareholder wealth effects of tax aggressiveness transfer. Specifically, the results indicate that, when acquirers are well-governed, acquisitions of targets with lower tax aggressiveness by acquirers with higher tax aggressiveness are value-enhancing. Similarly, acquisitions of targets with higher tax aggressiveness by acquirers with lower tax aggressiveness are value-destroying. These findings are robust to various measures of tax aggressiveness. In sum, I find that tax aggressiveness transfer is a significant determinant of value creation or destruction in M&A. The second study is devoted to studying whether and how the target’s participation of tax shelters – an extreme form of tax aggressiveness – matters in acquirer’s valuation of the target firm. Using a novel dataset that identifies targets’ non-participation in tax shelters, I find that the target’s non-sheltering status is associated with a higher takeover premium, indicating that acquirers reward targets for not engaging in tax sheltering. This positive association is stronger for targets that are more opaque and for acquirers that are less tax aggressive. In addition, I find that the target’s non-sheltering status is positively associated with acquirer returns for acquirers that are weakly governed and for targets that are more opaque. Overall, my findings suggest that the target’s non-sheltering status is relevant in acquirers’ valuation of the target, and that the valuation benefits of the target’s non-participation in tax shelters are mainly accrued to the target’s own shareholders rather than to those of the acquiring firm.

Tax aggressiveness generates significant cash savings and information asymmetry. Combining these two consequences of tax aggressiveness, I suggest that tax aggressiveness is associated with higher agency costs of free cash flows that affect investment decisions. Using the conditional investment efficiency model, I find evidence that tax aggressiveness is associated with more investments in firms with high access to investable funds, thus suggesting tax aggressiveness is associated with overinvestment. I also provide evidence that stronger tax monitoring and a change in tax disclosures mitigate the relation between tax aggressiveness and overinvestment. Lastly, I find that the overinvestment is associated with lower future abnormal returns. Thus, my results suggest that poor managerial investment decision making is an unintended consequence to tax aggressiveness. Additionally, I further the need for shareholders and board of directors to exert influence to avoid compensating managers for aggressive tax strategies.

This paper tests the notion that private firms are more tax aggressive than public firms. Tax avoidance measures, e.g. effective tax rates, cannot be used to compare private and public firms when private and public firms have different levels of importance on financial accounting earnings (Hanlon and Heitzman 2010). To disentangle financial reporting incentives from tax aggressiveness, I use the fact that European groups must prepare two sets of financial statements: first, group statements (consolidated), which provide information to investors, and, second, individual statements (unconsolidated), which are used for legal purposes, but not to inform investors. Since in individual statements financial reporting incentives do not vary between public and private firms, I use these effective tax rates to compare private and public firms. My findings show that public, not private, firms are more tax aggressive, as the effective tax rates of public firms are lower in individual and group statements. (author's abstract) / Series: WU International Taxation Research Paper Series

This paper empirically tests a theory laid out in Scholes et al. (2015, p. 315) that the U.S. worldwide tax system reduces the incentive of U.S. parent companies to be tax aggressive in their foreign subsidiaries. Investors subject to a worldwide tax system pay taxes on their worldwide income, regardless of the origin thereof. Therefore, a U.S. investor pays the difference between the effective tax payment abroad and the higher U.S. statutory tax when profits are repatriated. In contrast, investors subject to territorial tax systems gain the full tax savings from being tax aggressive abroad. Our results show that U.S.-owned foreign subsidiaries have a by 1.2 percentage point higher average GAAP effective tax rate (ETR) compared to subsidiaries owned by foreign investors from countries with a territorial system. We contribute to the literature by showing a mechanism, other than cross-country profit shifting, why U.S. multinational companies have higher GAAP ETRs than multinationals subject to territorial tax systems. (authors' abstract) / Series: WU International Taxation Research Paper Series

The footprint firms leave behind on this planet is widely discussed, and the topic of corporate social responsibility is constantly receiving additional attention. The gravity of working towards a more sustainable way of conducting business is illustrated by the incentivized tax system in various countries, where CSR can render tax deductions. It is widely debated if CSR and tax aggressiveness can live in symbiosis, and what relationship the two areas have. However, the literature investigating thisrelationship is scarce, which has left a research gap for the authors of this study to fill.This study does through a quantitative method investigate the relationship between CSR and tax aggressiveness of 3899 firms from 68 different countries, measuredat the end of 2018. By equivalating the level of social responsibility of a firm with the widely accepted ESG-score and the level of tax aggressiveness of a firm with the ETR-index created by the authors, the statistical testing of the relationship was enabled. Further, the control variables country, industry, leverage, beta, and size were included to account for variance in tax aggressiveness which is not captured by the ESG-score.To guide the authors through the establishment of hypothesis and statistical testing,a theoretical framework was established, concluding theories speaking for the implementation of tax aggressiveness, against it, and theories which reconciles the two contradicting views. The data was thereafter processed to investigate which statistical model to utilize. The robust OLS was found to be the best suited model, which was used to test the relationship between the aggregated ESG-score, as well as its components, relationship to the ETR-index.The statistical results in this study did not exhibit a significant relationship between the aggregated ESG-score, nor for the two components S and G, and the ETR-index. There is however a significant positive relationship between the E-score and the ETR-index, showing that environmentally friendly firms are less tax aggressive in general. This relationship could be explained by the stakeholder theory, which indicates that a firm's objective should be to maximize the value creation for all its stakeholders, as well as by the legitimacy theory, stating that firms seek to conduct proper business within socially constructed norms. Furthermore, the results show that tax aggressiveness depends on the country of headcounter, the industry, and the beta of a firm.

Syfte: CSR är idag ett väl använt och diskuterat begrepp. Även företagsskatt är ett omdiskuterat ämne där många av de metoder som företag använder sig av för att kraftigt minska skatten kan ifrågasättas. Då skatt kan ses som ett sätt att bidra till samhället i stort har studier av CSR, som är ett socialt ansvarstagande, blivit intressant att studera i förhållande till skatt. Motstridiga studier leder dock till att ett behov finns att undersöka faktorer som kan påverka förhållandet. Ägarstruktur kan ha en påverkan på hur arbetet med företags sociala ansvarstagande ser ut samt hur skatteaggressivt det är. Den föreliggande studien undersöker därför om insiderägande är en faktor som har en modererande effekt på förhållandet mellan CSR och skatteaggressivitet. Metod: Studien utgår från en positivistisk forskningsfilosofi med en hypotetisk-deduktiv ansats. Studien har en kvantitativ strategi och en longitudinell design som genomförts med data över tio år från 273 publika europeiska företag, för åren 2008–2017. I studien har sekundärdata använts inhämtad från databasen Thomson Reuters Eikon. Insamlat datamaterial har analyserats i statistikprogrammet SPSS. Resultat & slutsats: Resultaten visar att insiderägande har en modererande effekt på sambandet mellan CSR och skatt. Genom undersökningen framkommer det att det är nivån av insiderägande som bestämmer riktningen på förhållandet mellan CSR och skatteaggressivitet. Slutsatsen som kan nås är att ägarstruktur är en faktor som bör tas i beaktning vid studier av sambandet mellan skatt och CSR. Examensarbetets bidrag: Undersökningen lämnar ett unikt bidrag till redovisningsforskningen då den är den enda att studera ägarstrukturens påverkan på CSR och skatteaggressivitet genom att titta på insiderägande. Studien lämnar också ett praktiskt bidrag till myndigheter och organisationer om de ägarstrukturer som kan påverka företags inställning till hållbarhetsredovisning och skattebeteende. Utöver detta breddas den empiriska forskningen på europeiska bolag och sambandet mellan CSR och skatt. Förslag till fortsatt forskning: Förslag till vidare forskning ges i form av studier på vilken typ av aktier som innehas av insiders, det vill säga om innehavet innebär röststarka aktier eller inte. Förslag ges också till att studera olika grupper av insiders då det kan finnas skillnader inom en bred definition av insiders i huruvida personen i stor utsträckning associeras med företaget. Det ges även förslag på att inte mäta CSR som ett samlat begrepp utan istället studera dimensionerna som separata beroende variabler då det kan finnas skillnader som inte upptäcks då begreppet mäts som en helhet. / Aim: CSR is an often-used term and a well-discussed topic. Corporate tax is also an often debated subject where many of the methods used by companies to greatly reduce tax can be questioned. Since tax can be seen as a way to contribute to society at large, studies of CSR, which is a way for companies to take social responsibility, have become interesting to study in relation to tax. Contradicting studies, however, lead to the need to investigate factors that may affect the relationship. Ownership structure can have an impact on corporate social responsibility and how tax-aggressive a company is. This study therefore investigates whether insider ownership is a factor that has a moderating effect on the relationship between CSR and tax aggressiveness. Method: The study is based on a positivistic research philosophy with a hypothetical-deductive approach. The study has a quantitative strategy and a longitudinal design using ten-year data of 273 public European companies, for the years 2008-2017. In the study, secondary data has been used retrieved from the Thomson Reuters Eikon database. Collected data has been analyzed in the statistical program SPSS. Result & Conclusions: The results show that insider ownership has a moderating effect on the relationship between CSR and tax. This study shows that it is the level of insider ownership that determines the direction of the relationship between CSR and tax aggressiveness. The conclusion that can be reached is that ownership structure is a factor that should be taken into account in studies examining the relationship between tax and CSR. Contribution of the thesis: This study provides a unique contribution to the field of accounting research as it is the only one to study the impact of ownership structure on CSR and tax aggressiveness by examining insider ownership. The study also provides a practical contribution to government institutions and organizations about the ownership structures that can affect companies’ attitude towards sustainability reporting and tax behavior. In addition to this, empirical research on European companies and the relationship between CSR and tax are broadened. Suggestions for future research: Further research is needed in the form of studies on the type of shares held by insiders, i.e. if the holding contains voting shares or not. Further research is also needed to study different groups of insiders as there may be differences within a broad definition of insiders as to whether the person is largely associated with the company or not. In addition, there are also suggestions for more research that does not measure CSR as one variable. By studying the dimensions that make up CSR as separate variables there may be differences that are not detected when it is measured as one variable.

This study examines the determinants of tax aggressiveness. I utilize the unrecognized tax benefits (UTB) disclosed by the adoption of Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48) to proxy for firms’ tax aggressiveness. I hand collect UTB disclosures for 562 calendar year-end firms in the S and P 1500. Controlling for firms’ incentives and abilities to engage in aggressive tax positions (tax factors) and firms’ discretion over recognizing the financial reporting benefits of aggressive tax positions, I examine whether firms’ level of aggressive tax positions is influenced by (1) financial reporting aggressiveness, (2) choice of auditor, (3) analyst coverage, and (4) corporate governance quality. Using ordinary least squares regression, I examine the determinants of firms total UTB and its permanent and temporary components. I find that UTB and its permanent component are positively associated with firm size, presence of foreign operations, research and development activity, selling, general and administrative activity, firm value, and the probability that the firm engages in tax shelter activity. However, the temporary component is only increasing in firm size. Also, I find that UTB and its permanent component are positively associated with firms engaging in financial reporting aggressiveness and increasing auditor provided tax services, but negatively associated with analyst coverage, while the temporary component is only positively associated with financial reporting aggressiveness. Finally, I split the sample based on firms’ use of discretion over recognizing the tax benefits of aggressive tax positions prior to FIN 48 adoption. I find that firms which aggressively recognize tax benefits prior to FIN 48 adoption (i.e. firms that increased UTBs at FIN 48 adoption) have UTBs that are positive and significantly associated with (1) the probability that a firm engages in tax shelter activity, (2) auditor provided tax services, and (3) their record of using last chance earnings management to meet or beat analyst forecasts. These associations are not significant for firms that did not aggressively recognize tax benefits prior to FIN 48 adoption, suggesting that firms’ financial reporting aggressiveness is positively associated with firms’ level of tax aggression.

In the first essay I examine the relation between firm advertising and tax aggressiveness. Advertising increases firm visibility in both the product and the financial market. While investors would appreciate more tax savings, they are aware of the negative impact of tax aggressiveness on consumers’ views of the firm and hence its competitive positions in the product market. We find that firms that spend more on advertising have fewer tax sheltering activities, lower book-tax differences, and higher cash effective tax rates. Specifically, an increase of 1% on Advertisingi,t (ADVGPi,t), the firm pays an additional tax of $0.70 million ($10.92 million). However, the negative impact of advertising on tax aggressiveness becomes weaker (and even reverses) for firms having great transparency, more public scrutiny, or strong external monitoring. We control for endogeneity using propensity score matching and an instrumental variable approach. Our findings are consistent with the argument that advertising enhances corporate reputation and is an important determinant in firms’ tax planning. In the second essay I document a significant increase in opportunistic insider trades when retail investors are paying greater attention to the stock. Using Google SVI to proxy for their level of attention, we find that a higher (lower) SVI on a stock is associated with more insider sales (purchases) of the stock and greater abnormal returns on the sales (purchases). A value-weighted long-short portfolio mimicking insider trades would earn an abnormal return of 1.19% per month (14.28% per year), excluding transaction costs. We also fund that the SVI-related insider traders tend to be non-independent directors who have long tenures but no senior executive positions in their firm and the firm tends to exhibit weaker governance, lower reputation, and poorer social responsibility. Our results are more pronounced for lottery-type stocks but are weaker for stocks with large attention of local investors. Interestingly, the risk of SEC investigation and litigation is lower on SVI-related insider sales and this type of sales actually rises following an increase in news releases of SEC enforcement action. Overall, certain insiders appear to engage in trades to take advantage of variations of retail investors’ attention to their stock.

Syfte: Syftet med denna studie är att undersöka om det finns ett negativt samband mellan hållbarhetsredovisning och skatteaggressivitet.     Metod: Studien har utgått ifrån en positivistisk forskningsfilosofi och har antagit en hypotetisk-deduktiv ansats. Studien är av en kvantitativ art där en tvärsnittsdesign används och där det data som använts varit sekundär. Studiens urval har bestått av totalt 120 företag efter bortfall där Sverige och Schweiz har 60 företag var. All data har samlats genom användandet av Thomson Reuters Datastream och har därefter behandlats i statistikprogrammet SPSS för att kunna göra en logistisk regressionsanalys.   Resultat & slutsats: Studiens resultat visar inte på något negativt samband mellan hållbarhetsredovisning och skatteaggressivitet. Tvärtom ser vi ett positivt samband men inte på en statistisk signifikant nivå för att kunna förkasta noll-hypotesen.   Förslag till fortsatt forskning: Då denna studie är av tvärsnittsdesign ger resultatet endast en insikt om läget i dessa länder under det aktuella året. Ett förslag vi lämnar till fortsatta studier inom ämnet är därför att göra en studie över tid, för att få en tydligare bild över ett eventuellt samband mellan hållbarhetsredovisning och skatteaggressivitet.   Uppsatsens bidrag: Denna studie bidrar med ytterligare kunskap i forskningen kring CSR och skatteaggressivitet. Den bidrar framförallt med att fylla ett hål genom att titta på företag i europeiska länder, närmare bestämt Sverige och Schweiz. / Aim: The purpose of this study is to examine if there is a negative relation between sustainability reporting and tax aggressiveness.   Method: The study is based in a positivist research philosophy and adopts a hypothetical-deductive approach. The study is of a quantitative kind where a cross-sectional design and secondary data have been used. The study’s sample is 120 companies where Sweden and Switzerland has 60 companies each. All data has been gathered through the use of Thomson Reuters Datastream and have been processed in the statistic program SPSS in order to do a logistic regression analysis.   Result & Conclusions: The result of this study does not show a negative relation between sustainability reporting and tax aggressiveness. On the contrary we can see a positive relation but not on a statistically significant level to be able to reject the null hypothesis.   Suggestions for future research: This study is using a cross-sectional design which means that the result in the study can only be applied to the year the data was collected. A suggestion for future research within the subject is to do a study over time, to be able to get a better picture of a potential connection between CSR and tax aggressiveness.   Contribution of the thesis: This study contributes with knowledge in the research field of CSR and tax aggressiveness. It especially contributes by filling a gap in the research area by looking at companies from European countries, more particularly Sweden and Switzerland.