Abstract
We examine the relation between managerial ability and corporate tax avoidance. Using Demerjian et al. (2012) managerial ability measure, we find a negative and significant relation between managerial ability and tax avoidance. Our results are robust to alternative measures of tax avoidance. We further find that the capital market reacts less negatively to tax sheltering news for firms led by higher ability managers than for firms led by lower ability managers. Overall, our results indicate that, given significant costs associated with tax avoidance activities, more able managers who can turnover firm resources into revenue better, spend more effort in normal business operations than in tax avoidance activities.
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