Top Management Team Intrapersonal Functional Diversity and Tax Avoidance

What is it about?

Our paper tests the influence of "intrapersonal functional diversity" on tax avoidance (i.e., tax planning). Managers with high levels of intrapersonal functional diversity have backgrounds comprised of multiple job functions (e.g., engineering experience, management experience); that is, they are "generalists." We argue that the modern tax avoidance process involves all firm functions (e.g., tax departments must process information on capital assets, sales, etc.), so the tax avoidance process is best facilitated by generalist managers that understand and can interact with all firm functions. Holding other factors constant, replacing one non-generalist top manager with a generalist top manager results in roughly $3.25 million in tax savings per year. These generalist teams accomplish this result without resorting to the riskiest forms of tax avoidance (e.g., tax sheltering). Our results have practical implications. When forming a management team, firms can select managers who are generalists in order to increase tax avoidance.

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