Travis Chow (University of Hong Kong), Allen H. Huang (Hong Kong U. of Science and Technology), Kai Wai Hui (University of Hong Kong), Terry J. Shevlin (UC Irvine), Judge Ideology and Corporate Tax Planning (available at SSRN):

We investigate whether judges’ political ideology affects corporate tax behaviors. We find firms engaging in less aggressive tax planning when Circuit Court judges are more liberal. Cross-sectionally, the deterrent effect of liberal judge ideology is more pronounced for firms that engage in judiciary-sensitive tax strategies, face higher enforcement risk from the Internal Revenue Service, or have larger reputational costs from tax disputes. Our findings further suggest that liberal judge ideology reduces firms’ R&D investments and market value by constraining tax planning. Overall, our evidence highlights the importance of judge ideology to firm behavior in the context of corporate tax planning.