Top Management Acquisitive Behaviour and Tax Avoidance

This study uses merger and acquisitions (M&A) activities as a proxy for managers’ aggressive style and shows that firms with a higher degree of acquisitions (dollar value of acquisitions and number of acquisition announced in a given year) are associated with more tax avoidance. This finding is consistent with the idea that managers of firms that make self-maximizing decisions at the cost of shareholders in the form of high M&A activities within a short period of time are also likely to take high-risk tax positions. We also document that the negative effect of high acquisitiveness on tax avoidance is prevalent when CEOs equity based compensation increases in post-acquisition period suggesting agency problem is a key driver of high acquisitiveness and tax avoidance behavior. Additional tests show that managerial acquisitiveness is different from overconfidence in explaining corporate tax avoidance activities of the bidding firms.