scholarly journals The Non-Linear Relationship Between CEO Compensation Incentives And Corporate Tax Avoidance

2017 ◽  
Vol 33 (3) ◽  
pp. 439-450 ◽  
Author(s):  
Seungmin Chee ◽  
Wooseok Choi ◽  
Jae Eun Shin
Keyword(s):  
Executive Compensation ◽  
Linear Relationship ◽  
Ceo Compensation ◽  
Tax Avoidance ◽  
Corporate Tax ◽  
Non Linear ◽  
Prior Literature ◽  
Low Levels ◽  
Risk Reducing ◽  
Compensation Incentives

This study examines the effect of CEO compensation incentives on corporate tax avoidance. Unlike prior literature that assumes a monotonic relation between executive compensation incentives and tax avoidance, we find a non-linear relation between the two. Specifically, we find that CEO compensation incentives exhibit a positive relation with corporate tax avoidance at low levels of compensation incentives, whereas they show a negative relation at high levels of compensation incentives. We further find that the non-linear relationship between CEO compensation incentives and corporate tax avoidance does not exist for the subsample of S&P500 firms. Collectively, we provide evidence of the two counter effective forces, namely, - the incentive alignment effect and the risk-reducing effect, - that help explain the effect of CEO compensation incentives on tax avoidance.

How Internal Control Protects Shareholders' Welfare: Evidence from Tax Avoidance in China

2020 ◽  
Vol 19 (2) ◽  
pp. 19-39
Author(s):  
Hsihui Chang ◽  
Xin Dai ◽  
Yurun He ◽  
Maolin Wang
Keyword(s):  
Control Systems ◽  
Internal Control ◽  
Agency Costs ◽  
Tax Avoidance ◽  
Positive Association ◽  
Data Availability ◽  
Corporate Tax ◽  
Controlling Shareholders ◽  
The Public ◽  
Prior Literature

ABSTRACT This paper investigates how effective internal control protects shareholders' welfare in the context of corporate tax avoidance. Prior literature documents a positive association between internal control weakness and low tax avoidance. In this paper, we re-examine this association and complement prior research by finding that the direction of the association between internal control and tax avoidance depends on the level of tax avoidance. Specifically, for firms with low (high) levels of tax avoidance, internal control quality is positively (negatively) associated with tax avoidance. In additional analyses, we further explore how internal control mitigates agency costs for state-owned enterprises and tunneling activities. We show that for state-owned enterprises, which have lower incentives to avoid tax, effective internal control prevents managers from paying more taxes to cater to the controlling shareholders' interests. We also find that the association between tax avoidance and tunneling is reduced by effective internal control systems. Data Availability: Data are available from the public sources cited in the text.

scholarly journals Does executive compensation reflect equity risk incentives and corporate tax avoidance? A Japanese perspective

2014 ◽  
Vol 11 (2) ◽  
pp. 60-71
Author(s):  
Hiroshi Ohnuma
Keyword(s):  
Executive Compensation ◽  
Net Present Value ◽  
Multivariate Analyses ◽  
Risk Measures ◽  
Estimation Method ◽  
Tax Avoidance ◽  
Present Value ◽  
Corporate Tax ◽  
Equity Risk ◽  
Japanese Perspective

This study examines corporate tax avoidance as a determinant of executive compensation on the basis of equity risk incentives. Previous research shows that equity risk incentives motivate managers to make more risky, but positive net present value—investment decisions. Through correlation analyses, this study demonstrates that the tax risk measures adopted in this study are negatively associated with both the adoption of stock options and tax aggressive measures. Through multivariate analyses, this study demonstrates that executive compensations are significantly associated with our measures of tax risk positions despite the inclusion of several control variables. Moreover, this study finds consistent evidence that executive equity risk incentives are significantly associated with aggressive tax positions, regardless of the estimation method and the strength of the corporate governance function, and across several tax risk measures.

scholarly journals Executive compensation and firm performance: a non-linear relationship

2019 ◽  
Vol 17 (2) ◽  
pp. 1-17 ◽  
Author(s):  
Rijamampianina Rasoava
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Linear Relationship ◽  
South African ◽  
Boards Of Directors ◽  
Company Size ◽  
Executive Pay ◽  
Optimal Contracting ◽  
Non Linear ◽  
The Impact

In order to ensure profitability for shareholders, optimal contracting recommends the alignment between executive compensation and company performance. Large organizations have therefore adopted executives remuneration systems in order to induce positive market reaction and motivate executives. Complex compensation schemes are designed by Boards of Directors using strong pay-performance incentives that explain high levels of executive pay along with company size, demand for management skills and executive influence. However, the literature remains inconclusive on the pay-performance relationship owing to the various empirical methods used by researchers. Additionally, there has been little effort in the literature to compare methodologies on the pay-performance relationship. Using the dominant agency theory framework, the purpose of this study is to establish and examine the relationship between firm performance and executive pay. In addition, it intends to assess the characteristic of model specifications commonly adopted. To this aim, a quantitative analysis consisting of three complementary methods was performed on panel data from South African listed companies. The results of the main unrestricted first difference model indicate a strong non-linear relationship where the impact of current and previous firm performance on executive pay can be observed over 2 to 4-year period providing support to the optimal contracting theoretical perspective in the South African business context. In addition, CEO pay is more sensitive to firm performance as compared to Director pay. Lastly, although it affects executive pay levels, company size is not found to improve the pay-performance relationship.

scholarly journals The Non-Linear Effect of Corporate Taxes on Economic Growth

2015 ◽  
Vol 8 (s1) ◽  
pp. 14-31 ◽  
Author(s):  
Ján Huňady ◽  
Marta Orviská
Keyword(s):  
Economic Growth ◽  
Linear Relationship ◽  
Fixed Effects ◽  
Negative Impact ◽  
Strong Support ◽  
Tax Rates ◽  
Corporate Tax ◽  
Non Linear ◽  
Corporate Tax Rates ◽  
The Impact

Abstract The paper deals with the problem of taxation and its potential impact on economic growth and presents some new empirical insights into this topic. The main aim of the paper is to verify an assumed nonlinear impact of corporate tax rates on economic growth. Based on the theory of public finance and taxation, we hypothesize that at relatively low tax rates it is possible that the impact of taxation on economic growth become slightly positive. On the other hand when the tax rates are higher a negative impact of taxation on economic growth could be expected. Despite the fact that the most of the existing studies find a negative linear relationship between these variables, we can also find strong support for a non-linear relationship from several theoretical models as well as some empirical studies. Based on panel data fixed-effects econometric models, we, as well, find empirical evidence for a non-linear relationship between nominal and effective corporate tax rates and economic growth. Our data consists of annual observations for the period 1999 to 2011 for EU Member States. Based on the results, we also estimated the optimal level of the corporate tax rate in terms of maximizing economic growth in the average of the EU countries.

scholarly journals The Corporate Response to Government Attacks on Tax Shelters

2016 ◽  
Vol 8 (1) ◽  
pp. 126
Author(s):  
Noel P. Brock ◽  
Edward J. Schnee ◽  
Shane R. Stinson
Keyword(s):  
Tax Reform ◽  
Tax Avoidance ◽  
Discretionary Accruals ◽  
Corporate Tax ◽  
Corporate Response ◽  
Audit Firms ◽  
Tax Shelters ◽  
Corporate Tax Reform ◽  
Prior Literature ◽  
New Evidence

We examine the effectiveness of four federal government actions, all of which were designed to curb the proliferation of corporate tax shelters dating back to the 1990s, at eliciting measurable changes in characteristics commonly associated with tax shelter firms. Our results suggest that the government’s initial attacks on corporate tax shelters in the early 2000s elicited significant declines in book-tax differences, discretionary accruals, and the use of Big N audit firms, which contributed to gradual reductions in the estimated likelihood of tax sheltering for both multinational and purely domestic firms. Conversely, later attempts to discourage corporate tax shelters proved ineffective, likely due in part to the effectiveness of previous government attacks and a faltering economy. This study addresses calls from prior literature for a better understanding of factors determining corporate tax avoidance and offers new evidence of multi-faceted taxpayer reactions to corporate tax reform.

Returnee Directors and Corporate Tax Avoidance

2021 ◽  
pp. 0148558X2110173
Author(s):  
Jia Chen ◽  
Dongjie Chen ◽  
Li Liu ◽  
Zhong Wang
Keyword(s):  
Instrumental Variable ◽  
Tax Avoidance ◽  
Independent Directors ◽  
Positive Relation ◽  
Corporate Tax ◽  
Listed Firms ◽  
Board Directors ◽  
Low Levels ◽  
Using Data ◽  
Work Abroad

This study evaluates the effect of returnee directors on corporate tax avoidance by using data on publicly listed Chinese companies from 2000 to 2012. Returnee directors grow up in China and then study or work abroad before returning home to be listed firms’ board directors. We use the introduction of provincial policies toward attracting skilled individuals with foreign experience as an instrumental variable for Returnee directors, which is the fraction of returnee directors divided by the total number of directors within a firm. Using quantile regression, we find a positive relation between Returnee directors and corporate tax avoidance for low levels of tax avoidance but a negative relation for high levels of tax avoidance. The result is robust to a battery of tests. The relation between returnee directors and tax avoidance is stronger for state-owned enterprises (SOEs) than non-SOEs and stronger for returnees who hold MBA degrees, possess a background in accounting or auditing, or are independent directors than other returnees.

CEO compensation, portfolio holdings and strategic investments

2019 ◽  
Vol 12 (1) ◽  
pp. 137-160 ◽  
Author(s):  
Richard A. Lord ◽  
Yoshie Saito ◽  
Joseph R. Nicholson ◽  
Michael T. Dugan
Keyword(s):  
Executive Compensation ◽  
Ceo Compensation ◽  
Capital Expenditures ◽  
Strategic Investment ◽  
Content Type ◽  
Strategic Investments ◽  
Linear Relationships ◽  
Non Linear ◽  
Restricted Stock ◽  
Equity Portfolios

Purpose The purpose of this paper is to examine the relationship of CEO compensation plans and the risk of managerial equity portfolios with the extent of strategic investments in advertising, capital expenditures and research and development (R&D). The elements of compensation are salary, bonuses, options and restricted stock grants. The authors proxy the design of CEO equity portfolios by the price performance sensitivity of the holdings and the portfolio deltas. Design/methodology/approach The authors use the components of executive compensation and portfolio risk as the dependent variables, regressing these against measures for the level of strategic investment. The authors test for non-linear relationships between the components of CEO compensation and strategic investments. The sample is a broad cross-section from 1992 to 2016. Findings The authors find strong support for non-linear relationships of capital expenditures and R&D with CEO bonuses, option grants and restricted stock grants. There are very complex relationships between the components of executive compensation and R&D expenditures, but little evidence of a relationship with advertising expenditures. The authors also find strong complex relationships in the design of CEO equity portfolios with advertising and R&D. Originality/value Little earlier research has considered advertising, capital expenditures and R&D in a unified framework. Also, testing for non-linear associations provides much greater insight into the relationship between the components of executive compensation and strategic investment. The findings represent a valuable incremental contribution to the executive compensation literature. The results also have normative policy implications for compensation committees’ design of optimal annual CEO compensation packages to incentivize or discourage particular strategic investment behavior.

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