We use a proprietary data set with detailed executive compensation information to
examine the relationship between the incentives of the tax director and GAAP and cash
effective tax rates, the book-tax gap, and measures of tax aggressiveness. We find that
the incentive compensation of the tax director exhibits a strong negative relationship
with the GAAP effective tax rate, but little relationship with the other tax attributes. We
interpret these results as indicating that tax directors are provided with incentives to
reduce the level of tax expense reported in the financial statements.