A Deakin University study has found CEOs who hold a pilot’s licence are more likely to indulge in tax avoidance strategies.
The investigation, which analysed 26 years of data, was conducted on the hypothesis that “thrill-seeking” executives would be more likely to take risks.
Recently published in the Journal of Corporate Finance, this paper finds that, on average, CEOs with a pilot’s licence have a tax rate 2.6 per cent lower than firms managed by an average, non-pilot chief executive.
In total, companies hiring pilot CEOs save US$4.95 million per year in tax payments.
Deakin Business School associate professor Edward Podolski said that while some firms engage in tax reduction strategies that are borderline illegal, and others choose to stay within the spirit of the law, there is a huge disparity between firms.
The study wanted to understand this significant difference in business practice and whether the personality of the CEO had a significant contributing factor.
“Pilot licensing is the only public data we could use test our hypothesis,” said Podolski.
“We can’t know exactly how many corporate leaders enjoy bungee jumping, for example, but we believe flying light aircraft is an effective proxy to establish an appetite for risk.”
The study cross-matched the data from Standard & Poor’s 1500 stock market index with the FAA licensing database.
It was found that 5–6 per cent of CEOs also held a licence to fly a small aircraft, making it a large enough group of thrill-seeking CEOs to carry out the study.
“We would expect a similar association in Australia and across Europe because of their comparable corporate and cultural environments,” Podolski said