Publications
Publications
- 2015
- HBS Working Paper Series
Executives' Financial Preferences and Shareholder Tax Outcomes
By: Gerardo Pérez Cavazos and Andreya M. Perez-Silva
Abstract
We demonstrate that executives’ personal financial preferences impact both layers of shareholder taxes, corporate taxes and corporate payouts. We reconstruct executives’ insider equity portfolios to quantify their personal incentives and analyze stock sales that reveal their personal preferences to incorporate tax strategy in their financial decisions. We find that 2,281 executives strategically realize their built-in capital gains prior to the 2013 tax hikes to save nearly $741 million in personal taxes. These executives reduce their shareholders’ tax burdens in an economically meaningful way. Specifically, before the same 2013 tax hike they saved shareholders over $700 million in taxes by distributing $8 billion in special and accelerated dividends. In addition, on average, the presence of each tax-strategic executive further lowers shareholder taxes by lessening the firm’s long-run cash effective tax rate by 43 basis points.
Keywords
Executives; Capital Gain; Dividends; Effective Tax Rate; Tax Avoidance; Taxation; Management Teams; Business and Shareholder Relations
Citation
Pérez Cavazos, Gerardo, and Andreya M. Perez-Silva. "Executives' Financial Preferences and Shareholder Tax Outcomes." Harvard Business School Working Paper, No. 16-034, September 2015.