CEOs' Internal Connections and Corporate Tax Avoidance

Aurelius AARON; Rui GE; Chong WANG; Feng (Harry) WU

doi:10.1111/acfi.70123

CEOs' Internal Connections and Corporate Tax Avoidance

Aurelius AARON
, Rui GE^*
, Chong WANG
, Feng (Harry) WU

^*Corresponding author for this work

Department of Accountancy

Research output: Journal Publications › Journal Article (refereed) › peer-review

Abstract

We find that more social connections between a CEO and other top executives in the same firm are associated with more tax avoidance by the firm. This effect holds when several alternative measures of corporate tax avoidance are used. The finding also persists after controlling for potential endogenous effects. The impact of a CEO's internal connections on corporate tax avoidance is more pronounced when the firm operates in a more uncertain environment, when the CEO has a shorter tenure, and when the CEO's wealth is less sensitive to changes in the firm's stock price. Furthermore, we find that corporate tax avoidance induced by CEOs' internal connections generally reduces firm value. Overall, our findings suggest that CEOs' internal connections facilitate collaboration on tax planning within the management team, but the facilitated tax planning primarily harms shareholders' interests.

Original language	English
Pages (from-to)	286-307
Number of pages	22
Journal	Accounting and Finance
Volume	66
Issue number	1
Early online date	15 Oct 2025
DOIs	https://doi.org/10.1111/acfi.70123
Publication status	Published - Mar 2026

Bibliographical note

This paper benefits from comments by Larelle Chapple (the editor), Zhiming Ma, Xueli Sun, Jamie Tong, Feida (Frank) Zhang and the anonymous reviewer.

Publisher Copyright:
© 2025 Accounting and Finance Association of Australia and New Zealand.

Funding

We gratefully acknowledge financial support from the Hong Kong University Grants Committee's General Research Fund (GRF No. 15508418), the National Natural Science Foundation of China (project number: 72172095), the Guangdong Basic and Applied Basic Research Foundation (project number: 2022A1515011952) and the Guangdong Research Grants for Philosophy and Social Science (project number: GD21CYJ04). We also thank Jibao Zhang for his excellent help with data collection. This study was supported by the Research Center for FinTech and Digital-Intelligent Management, Shenzhen University.

Keywords

internal connections of CEOs
social network
tax avoidance

Access to Document

10.1111/acfi.70123

https://onlinelibrary.wiley.com/doi/10.1111/acfi.70123

Cite this

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title = "CEOs' Internal Connections and Corporate Tax Avoidance",

abstract = "We find that more social connections between a CEO and other top executives in the same firm are associated with more tax avoidance by the firm. This effect holds when several alternative measures of corporate tax avoidance are used. The finding also persists after controlling for potential endogenous effects. The impact of a CEO's internal connections on corporate tax avoidance is more pronounced when the firm operates in a more uncertain environment, when the CEO has a shorter tenure, and when the CEO's wealth is less sensitive to changes in the firm's stock price. Furthermore, we find that corporate tax avoidance induced by CEOs' internal connections generally reduces firm value. Overall, our findings suggest that CEOs' internal connections facilitate collaboration on tax planning within the management team, but the facilitated tax planning primarily harms shareholders' interests.",

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author = "Aurelius AARON and Rui GE and Chong WANG and WU, \{Feng (Harry)\}",

note = "This paper benefits from comments by Larelle Chapple (the editor), Zhiming Ma, Xueli Sun, Jamie Tong, Feida (Frank) Zhang and the anonymous reviewer. Publisher Copyright: {\textcopyright} 2025 Accounting and Finance Association of Australia and New Zealand.",

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doi = "10.1111/acfi.70123",

language = "English",

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N2 - We find that more social connections between a CEO and other top executives in the same firm are associated with more tax avoidance by the firm. This effect holds when several alternative measures of corporate tax avoidance are used. The finding also persists after controlling for potential endogenous effects. The impact of a CEO's internal connections on corporate tax avoidance is more pronounced when the firm operates in a more uncertain environment, when the CEO has a shorter tenure, and when the CEO's wealth is less sensitive to changes in the firm's stock price. Furthermore, we find that corporate tax avoidance induced by CEOs' internal connections generally reduces firm value. Overall, our findings suggest that CEOs' internal connections facilitate collaboration on tax planning within the management team, but the facilitated tax planning primarily harms shareholders' interests.

AB - We find that more social connections between a CEO and other top executives in the same firm are associated with more tax avoidance by the firm. This effect holds when several alternative measures of corporate tax avoidance are used. The finding also persists after controlling for potential endogenous effects. The impact of a CEO's internal connections on corporate tax avoidance is more pronounced when the firm operates in a more uncertain environment, when the CEO has a shorter tenure, and when the CEO's wealth is less sensitive to changes in the firm's stock price. Furthermore, we find that corporate tax avoidance induced by CEOs' internal connections generally reduces firm value. Overall, our findings suggest that CEOs' internal connections facilitate collaboration on tax planning within the management team, but the facilitated tax planning primarily harms shareholders' interests.

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CEOs' Internal Connections and Corporate Tax Avoidance

Abstract

Bibliographical note

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Keywords

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