CEO Endowed Trait and Corporate Tax Planning: Evidence from Pilot CEOs

Abstract

We find evidence that the hobby of flying airplanes of chief executive officers (CEOs) is associated with significantly lower effective tax rates and a greater propensity to engage in the most aggressive forms of tax avoidance, such as tax sheltering. The effect is economically as well as statistically significant. Cross-sectional tests reveal that the baseline results are not sensitive to managerial remuneration incentives, suggesting that intrinsic incentives derived from endowed traits are not easily moderated by extrinsic motivation from compensation contracts. However, our analysis shows that the baseline result holds only in settings in which managers are subject to high levels of monitoring by institutional shareholders, suggesting that strong managerial oversight helps direct managerial thrill-seeking tendencies toward value-creating endeavors. Taken together, our paper highlights the significant role that CEO thrill-seeking tendencies play in driving corporate tax planning activities.