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Thrill-seeking bosses leave their companies better off, says Deakin Uni study.
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High-flying CEOs know how to land low taxes
15 September 2022
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9 minute read
Companies led by thrill-seeking chief executives pay less tax because their leaders’ risky personal choices influence the firm’s compliance strategy, according to a Deakin University study.
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It found a link between minimisation practices and CEOs who hold a licence to fly light aircraft, with the average pilot-led business having an effective tax rate 2.6 per cent lower than those without.
That meant an average saving of US$4.95 million per annum among the US companies studied.
Deakin Business School Associate Professor Edward Podolski said his team chose to examine CEOs who were also pilots to see if risk-taking in their personal lives translated to corporate policies.
“Despite the prevalence of corporate tax avoidance, there are significant differences in firms’ tax policies,” said Mr Podolski.
“Some engage in tax reduction strategies bordering on illegality, while others choose to stay within the letter and the spirit of the law even if it means paying higher taxes.
“We wanted to understand what explains this difference and whether the personality of CEOs was a significant factor, specifically their thrill-seeking tendencies.”
Public data meant researchers could track CEOs who fly planes, whereas those with other risky activities might be hard to detect, Mr Podolski said.
“We can’t know how many corporate leaders enjoy bungee jumping for example, but we believe flying light aircraft is an effective proxy to establish an appetite for risk,” he said.
The study used American data from firms listed on Standard & Poor’s 1500 and cross-referenced it with the Federal Aviation Administration licensing database.
On average, 5–6 per cent of CEOs held pilot licences throughout the 1992 to 2018 study period.
“Our results are robust and control for factors such as CEO characteristics, corporate governance, media coverage, financial constraints, or risk-taking incentives,” said Mr Podolski.
“We would expect a similar association in Australia and across Europe because of their comparable corporate and cultural environments.”
Mr Podolski said the research showed that shareholders and board members needed to understand the personalities of CEOs as they had an impact on the company’s policies and outcomes.
“You can’t just assume a CEO is a CEO and that they are interchangeable,” he said.
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