We examine how the partisan alignment between chief executive officers (CEOs) and the United States president influences corporate disclosure outcomes. We predict and find evidence that more partisan-aligned CEOs display greater optimism in their corporate disclosures. CEO partisan alignment is positively associated with the likelihood of issuing a management earnings forecast and issuing overly optimistic forecasts. More partisan-aligned CEOs also use a more optimistic tone in the corporate disclosure and exhibit a lower level of accounting conservatism. Our findings suggest that time-varying beliefs of CEOs formed by the political environment can shape corporate disclosures.

We examine how executive equity incentives are associated with firms' conforming tax avoidance. Conforming tax avoidance is unique compared to nonconforming tax avoidance in that it decreases tax liabilities by reducing pretax income. Thus, conforming tax avoidance presents a unique set of consequences with important links to both risk and value‐creation incentives. Consistent with risk‐taking incentives increasing conforming tax avoidance, we find that linking executive wealth to stock price volatility (i.e., vega) is positively associated with conforming tax avoidance. We also find that linking executive wealth to stock price (i.e., delta) is negatively associated with conforming tax avoidance. The results of our cross‐sectional tests suggest that the negative association between delta and conforming tax avoidance is predominantly driven by a risk aversion effect rather than a value‐creation effect. Our findings add to the literature on the relation between tax avoidance and executive compensation, as well as the trade‐off between book and taxable income.