CEOs preferring dangerous sports activities hobbies usually tend to take a dangerous strategy to their firm’s tax planning, based on a brand new research printed by the American Accounting Affiliation.
The research, from researchers on the College of Hong Kong, the College of California Irvine, the Nationwide College of Singapore, and the College of Nottingham Ningbo, examined the tax methods of company chiefs whose reported hobbies included dangerous sports activities corresponding to automobile racing and windsurfing, in distinction with these whose sports activities hobbies have been much less dangerous corresponding to enjoying golf or just watching soccer video games.
The paper, which seems within the spring subject of the Journal of the American Taxation Affiliation, printed by the AAA, means that the riskier a CEO’s hobbies are, the extra threat they’re snug with exposing their firm to in terms of the company tax technique. CEO sports activities hobbies might turn into a potential instrument for auditors focused on assessing company tax threat and even for built-in reporting.
“CEOs can set the tone of an organization’s tax planning choices, and plenty of stakeholders have an interest within the extent to which CEOs are prepared to show their firms to elevated threat,” says Shuqing Luo, co-author of the research and an affiliate professor of accounting on the College of Hong Kong, in a press release. “Proof within the psychology literature signifies that sports activities hobbies mirror the private threat preferences of the members. We wished to look at how a CEO’s private threat preferences, as mirrored within the sports activities they take pleasure in, are additionally mirrored within the tax planning of that CEO’s firm.”
The researchers collected knowledge on 732 CEOs of U.S. firms, utilizing self-reported knowledge on sports activities hobbies from the CEOs, in addition to nationwide sports activities damage charges to find out every sport’s threat stage. For instance, windsurfing and motor sports activities have been comparatively riskier, whereas jogging and boating offered a lot decrease ranges of threat.
The researchers employed 4 measures to evaluate the extent to which every CEO’s firm was aggressive in tax planning, together with the quantity of tax every firm paid relative to its revenue and whether or not the businesses arrange tax shelters. The professors did a sequence of checks to see if there was any relationship between the sports activities and tax planning knowledge, and located that corporations managed by CEOs with riskier sports activities hobbies have been extra aggressive of their tax planning.
“This affiliation was notably pronounced for CEOs who had larger monetary incentives and larger decision-making energy,” stated Lirong Shi, co-author of the research and an assistant professor of accounting at College of Nottingham Ningbo, in a press release.
The researchers consider their findings might be worthwhile for a wide selection of enterprise stakeholders.
“For instance, in case you’re a board member, and also you’re hiring a CEO, it may be troublesome to get a candid evaluation of a candidate’s threat preferences,” Luo stated in a press release “Our work means that a candidate’s sports activities preferences can present some perception into the candidate’s threat preferences. Equally, traders, analysts, bankers and others could also be focused on having an extra technique of assessing the danger preferences of an organization’s high executives. There are additionally functions for the accounting group specifically. For instance, this can be a worthwhile instrument for auditors when assessing a shopper’s threat profile.”
Further co-authors on the research have been Terry Shevlin, a professor of accounting on the College of California, Irvine; and Aimee Shih of the Nationwide College of Singapore.