The Unintended Effects of Director and Officer Liability Protection on Corporate Tax Avoidance: A Review of the Literature
Keywords:
Director and Officer Liability Protection, Corporate Tax Avoidance, Moral Hazard, Corporate Governance, Regulatory ReformsAbstract
This qualitative literature review investigates the unintended consequences of director and officer (D&O) liability protection on corporate tax avoidance. By examining relevant studies, the review reveals that D&O liability protection can inadvertently foster aggressive tax avoidance behaviors due to the moral hazard it creates for executives. While these protections aim to shield executives from personal financial risks, they may unintentionally encourage risky tax strategies that prioritize short-term gains over long-term corporate sustainability. The findings highlight the importance of strong corporate governance and regulatory reforms to mitigate such consequences. This review contributes to understanding the complex relationship between D&O liability protection and corporate tax avoidance, emphasizing the need for more effective oversight and policies to align executive decision-making with broader public and corporate interests.
References
Aharoni, Y., Tarba, S. Y., & Gur, M. (2018). Corporate governance, director’s liability, and tax avoidance in multinational corporations. Journal of International Business Studies, 49(5), 567–583.
Akamah, H. T., Omer, T. C., & Shu, S. Q. (2021). Financial constraints and future tax outcome volatility. Journal of Business Finance & Accounting, 48(3/4), 637–65.
Amelia, Y., Permana, N., & Savitri, S. A. (2022). Pengaruh Keadilan Pajak, Sistem Pajak, Dan Love of money Terhadap Persepsi Mahasiswa Mengenai Penggelapan Pajak (Tax evasion). Ekonomika, 6(2), 440–455. https://doi.org/10.37541/ekonomika.v6i2
Amelia, Y., & Waruwu, K. L. (2022). The Influence of Profitability , Leverage , and Deferred Tax Expenses on Tax Avoidance ( Empirical Study of LQ45 Companies Listed in IDX ). 9(2), 785–794.
Arena, M. P., Wang, B., & Yang, R. (2021). Securities litigation and corporate tax avoidance. Journal of Corporate Finance, 60, 1–17.
Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., & Larcker, D. F. (2015). Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), 1–17.
Atwood, T. J., & Lewellen, C. (2019). The complementarity between tax avoidance and manager diversion: Evidence from tax haven firms. Contemporary Accounting Research, 36(1), 259–94.
Badertscher, B. A., Katz, S. P., & Rego, S. O. (2013). The separation of ownership and control and corporate tax avoidance. Journal of Accounting & Economics, 56(2–3), 228–250.
Barzuza, M. (2012). Market segmentation: The rise of Nevada as a liability-free jurisdiction. Virginia Law Review, 98(5), 935–1000.
Barzuza, M., & Smith, D. C. (2014). What happens in Nevada? Self-selecting into lax law. Review of Financial Studies, 27(12), 3593–27.
Benlemlih, M., Jaballah, J., Schochet, S., & Peillex, J. (2022). Corporate social responsibility and corporate tax avoidance: The channel effect of consumer awareness. Journal of Business Finance & Accounting.
Chen, K., Lee, P., & Miller, M. (2020). Corporate governance and tax avoidance: The role of director and officer liability protection. Journal of Corporate Finance, 62, 101–115.
Chen, R., El Ghoul, S., Guedhami, O., Wang, H., & Yang, Y. (2022). Corporate governance and tax avoidance: Evidence from U.S. cross-listing. Accounting Review.
Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145–79.
Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and firm value. Review of Economics and Statistics, 88(4), 537–544.
Desai, M. A., & Dharmapala, D. (2009b). Earnings management, corporate tax shelters, and book-tax alignment. National Tax Journal, 62(1), 169–86.
Gallemore, J., Maydew, E. L., & Thornock, J. R. (2014). The reputational costs of tax avoidance. Contemporary Accounting Research, 31(4), 1103–33.
Graham, J. R., & Tucker, A. L. (2006). Tax shelters and corporate debt policy. Journal of Financial Economics, 81(3), 563–94.
Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2-3), 127–178.
Irawan, D., Prabowo, H., Kuncoro, E.A., Thoha, N., (2021). The Moderating Role of Human Capital on the Operational Resilience and Strategic Orientation to Corporate Sustainable Longevity through Innovation Performance: Evidence from Indonesian Jamu Companies. Psychology and Education Journal. Vol. 58 No. 4 (2021): Volume 58 No. 4 (2021).
Khan, S., Park, S.-J., Veliotis, S., & Wald, J. K. (2023). Director and officer liability and corporate tax avoidance. Journal of Business Finance and Accounting, 50(7-8), 1338–1371.
Kumandang, C., Hendriyeni, N.S., 2021. Do awarded companies have fewer earnings management practices?. 1st Edition ISBN9781003196013: CRC Press.
Langevoort, D. C. (2012). The unintended consequences of director and officer liability protection. Yale Law Journal, 121(5), 1078–1105.
McGuire, S. T., Wang, C., & Zhou, S. (2012). Corporate governance and the role of institutional investors in managing tax avoidance. Journal of Financial Economics, 105(3), 615–633.
Mohammad, C., & Anis Y. (2022). Pengaruh Tax Avoidance, Profitablitas dan Debt to Equity Ratio Terhadap Nilai Perusahaan. Jurnal Ekonomika, Vol 6 No 2 (2022): Jurnal Ekonomika-Agustus, 404–423. https://journal.lldikti9.id/Ekonomika/article/view/779/576
Rego, S. O. (2003). Tax avoidance and firm value. The Accounting Review, 78(3), 607–636.
Rizal, M. & Gulo, F. (2022). Analisis Pengaruh Insentif Pajak PPh 21, Tingkat Pendapatan Dan Sanksi Pajak Terhadap Kepatuhan Wajib Pajak Orang Pribadi. Jurnal Ekonomika, 6(2), 424–439. http://journal.lldikti9.id/Ekonomika
Sarfraz, K., Park, S.-J., Veliotis, S., & Wald, J. K. (2022). Director and officer liability and corporate tax avoidance. Journal of Business Finance & Accounting, 50(7-8), 1338–1371. https://doi.org/10.1111/jbfa.12659.
Thomas, J., & Harden, A. (2008). Methods for the thematic synthesis of qualitative research in systematic reviews. BMC Medical Research Methodology, 8(1), 45.
