Title: Military CEOs and Tax Avoidance
Abstract: We show that firms headed by CEOs with military service experience are less likely to engage in tax avoidance. These firms have higher cash/GAAP effective tax rates (ETRs) by 1%-2%, maintain higher ETRs as long as 6-8 years, and are 9%-11% less likely to be frequent users of tax havens in their material business operations. The differences are economically significant: these firms pay $1-$2 million more tax per firm-year. We further exploit the variation in managers? birth year and gender to establish causality. Last, we also show that military CEOs are less likely to be sued in class action lawsuits, restate financial statements, backdate options, and engage in earnings management. Collectively, these findings suggest that past military experience leaves an imprint on managers? tax avoidance behaviors.
Lillian Mills is the Wilton E. and Catherine A. Thomas Professor of Accounting and Department Chair at The University of Texas at Austin. Her research interests are in tax compliance, accounting for income taxes and effective tax rates, and international taxation. Professor Mills has continuing working relationship with the IRS Large Business and International division. In 2003 and 2004 she was a consultant to the IRS/Treasury workgroup developing Form 1120 Schedule M-3. In 2005 and 2006 she was a Stanley Surrey Senior Research Fellow at the Office of Tax Analysis for the U.S. Department of Treasury. In 2007 she was appointed to the IRS? Information Reporting Program Advisory Committee as a member of the Tax Gap Measurement subcommittee. Professor Mills is currently an Associate Editor at Contemporary Accounting Research. She serves or has served on the editorial boards of The Accounting Review, Contemporary Accounting Research, National Tax Journal, Accounting Horizons, and The Journal of the American Taxation Association.