The effect of employee satisfaction on effective corporate tax planning: Evidence from Glassdoor

Li J.

Advances in Accounting, vol.57, 2022 (ESCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 57
  • Publication Date: 2022
  • Doi Number: 10.1016/j.adiac.2022.100597
  • Journal Name: Advances in Accounting
  • Journal Indexes: Emerging Sources Citation Index (ESCI), Scopus
  • Keywords: Tax avoidance, Tax risk, Employee satisfaction, Glassdoor, Human capital
  • TED University Affiliated: No


© 2022 Elsevier LtdHuman capital plays a substantial role in the corporate tax planning process, and thus a firm's ability to attract, retain and motivate talented employees is a potential determinant of tax planning outcomes. Motivated by the premise that employee satisfaction is a key driver of productivity, I investigate the relationship between employee satisfaction ratings, collected from the website Glassdoor, and corporate tax planning outcomes. I find that firms with higher employee satisfaction ratings exhibit significantly greater tax avoidance as well as lower tax risk. A one-point increase in overall employee satisfaction ratings, on a five-point scale, is associated with a 2.6 percentage point decrease in cash effective tax rates (Cash ETRs) and a 0.20 standard deviation decrease in Cash ETR volatility. These results are stronger for firms with larger corporate tax departments, which rely more on employees to manage the tax planning process. I also find that employee satisfaction is negatively associated with UTB reserves, indicating that the increased tax avoidance is unlikely to arise from aggressive tax positions. Finally, through path analyses, I find that employee satisfaction can influence a firm's tax outcomes by reducing tax department turnover and improving the firm's internal information environment. Overall, my findings are consistent with the premise that employees play a substantial role in implementing tax avoidance strategies and mitigating tax risk, thus managers who adopt a strong work culture and employee-friendly policies can attain beneficial tax outcomes.