CEOs’ Risk Jobs if Taxes Differ Too Greatly from Competition

Noted: Enacted in 2002 in response to jolting financial scandals at Enron, WorldCom and other major companies, SOX instituted a considerable tightening of federal corporate regulation. In the words of the study, by James A. Chyz of the University of Tennessee and Fabio B. Gaertner of the University of Wisconsin–Madison, the “post-SOX period coincided with increased IRS scrutiny of aggressive tax positions and legislation that led to increased regulatory scrutiny over the tax function. Consistent with increased pressures to be less tax-aggressive, we find that being in the lowest quintile of benchmarked tax rates [became] influential in predicting CEO turnover… This is consistent with boards responding to…increase[d] political and reputational costs surrounding tax avoidance.”