CEO CHARITABLE INCLINATION AND CORPORATE TAX AVOIDANCE

Many CEOs are philanthropists and express their passion for social welfare through service to various charities and foundations. However, it is unclear whether these behaviors are driven by intrinsic motivations, such as prosocial value and altruism, or by extrinsic and egoistic motivations like reputation and social network building. To understand the underlying motivations and consequences of these behaviors, I build on the self-determination theory and investigate how CEO charitable inclination, defined as CEO sitting on charity boards, affects corporate tax avoidance. I further examine how CEO charitable inclination impacts firm value through corporate tax policies.
I find that CEO charitable inclination is negatively associated with corporate tax avoidance. Specifically, firms with charitable-inclined CEOs pay higher cash taxes and are less likely to engage in aggressive forms of tax planning, such as tax shelters. The results are robust to different model specifications and alternative measures. Further, I conduct additional analysis examining the underlying motivations of CEO charitable inclination and find it positively associated with intrinsic motivations, such as prosocial values and high moral standards. These results provide strong evidence that charitable-inclined CEOs, driven by their intrinsic motivations, are concerned about social welfare and government revenue. These CEOs are less likely to engage in unethical or immoral behaviors, such as aggressive tax planning and tax evasion. However, I do not find evidence that CEO charitable inclination has a moderating effect on the relationship between corporate tax avoidance and firm value.