CEO Narcissism and Corporate Tax Sheltering

TLDR

Narcissism is a multifaceted personality trait linked to a sense of superiority, aggressive pursuit of rewards, and a tendency to disregard legal constraints. This study investigates how CEO narcissism influences the use of aggressive corporate tax shelters. We find that CEO narcissism significantly raises the probability that a firm engages in tax sheltering, confirming the behavioral link. JEL classifications: H25; H26; M41.

Abstract

ABSTRACT We examine the effect of CEO narcissism on an especially aggressive form of corporate tax avoidance: tax sheltering. Narcissism is a multifaceted personality trait associated with a sense of superiority and a propensity to engage in questionable behavior. Narcissists feel that they are above the law and are aggressive in pursuing what they believe is theirs. Narcissists also possess heightened motivations to pursue rewards or desirable outcomes while only being weakly motivated to avoid negative outcomes. Consistent with these behavioral tendencies of narcissistic individuals, we document statistically and economically significant effects of CEO narcissism on the likelihood that the CEO's firm engages in corporate tax shelters. Our study contributes to the literature by documenting a mechanism through which the individual personality characteristics of the CEO can affect firm-level tax policies. JEL Classifications: H25; H26; M41.