Corporate Culture and Tax Planning

We study the effects of corporate culture on tax planning. Using the competing value framework and natural language processing techniques, we quantify internally oriented corporate cultural dimensions of control and collaboration. We predict that these dimensions of corporate cultural influence intra-organizational knowledge flows in different ways, ultimately influencing corporate tax planning. Hierarchical control cultures foster bureaucracy, which negatively impacts intraorganizational knowledge flows, ensuing less optimized tax planning. In contrast, collaboration-oriented cultures embrace flat hierarchies that positively influence intraorganizational knowledge flows, resulting in more efficient tax planning. Our empirical findings are consistent with these predictions: firms with control-oriented (collaboration-oriented) cultures have higher (lower) GAAP and cash effective tax rates. We find some evidence to suggest that collaboration-oriented cultures achieve these corporate tax savings by engaging in aggressive tax sheltering activities and that such tax savings are value-enhancing.