Tax Savvy Executives

We investigate why firms include individuals with significant professional tax experience on their senior management team and the consequences associated with the presence of these tax-savvy senior executives. We find that past performance, network connections, geographic location, and tax rate level relative to industry peers are all significant determinants in having a tax-savvy executive on the senior management team. Using propensity score matching, we find that effective tax rates decrease substantially after a tax-savvy executive is added to senior management and revert following the departure of a tax-savvy executive from senior management. We connect the changes in effective tax rates to changes in the usage of foreign subsidiaries in low tax jurisdictions.