Top management’s financial experience, backgrounds in regulatory and non-regulatory financial institutions, and corporate tax aggressiveness

Purpose We investigate how top management team (TMT) members with experience in regulatory financial institutions (e.g. insurance companies, commercial and investment banks, fund management firms, securities depositories, futures and trust, and investment management entities) or non-regulatory financial institutions (e.g. stock exchanges, policy banks, and regulatory commissions) influence tax aggressiveness. We further examine how institutional investors and regulatory violation pressure moderate this relationship and explore the firm value implications of strategic tax planning led by financial executives. Design/methodology/approach We analyze 21,912 firm-year observations from 3,186 Chinese listed firms. Baseline ordinary least squares (OLS ) models include industry, year, and province fixed effects. Robustness and endogeneity are addressed using weighted least squares (WLS), propensity score matching (PSM), entropy balancing, dynamic system generalized method of moments (GMM), executive-turnover event analyses, Granger causality tests, instrumental-variable two-stage least squares (2SLS) estimations, and firm fixed effects. Findings Firms led by top executives (e.g. CEOs) with financial expertise tend to exhibit lower effective tax rates (ETRs) and larger book–tax differences. Notably, executives with experience in non-regulatory financial institutions are more likely to pursue aggressive tax strategies, whereas those with backgrounds in regulatory institutions show no significant effect. Furthermore, we find that institutional investors amplify the tax aggressiveness of financially expert executives and that these executives become more aggressive in tax avoidance following regulatory sanctions. Finally, these tax strategies are highly associated with higher future firm value when led by financially expert executives. Originality/value We contribute new insights to the literature by examining how top executives with prior experience in both regulatory-oriented and non-regulatory financial institutions influence future tax planning and firm value, drawing on upper echelons and imprinting theories.