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The non-linear relationship between CEO compensation incentives and corporate tax avoidance
- Authors
- Chee, S.; Choi, W.; Shin, J.E.
- Issue Date
- 2017
- Publisher
- CIBER Institute
- Keywords
- CEO compensation incentives; Risk-taking activities; Tax avoidance
- Citation
- Journal of Applied Business Research, v.33, no.3, pp.439 - 450
- Indexed
- SCOPUS
- Journal Title
- Journal of Applied Business Research
- Volume
- 33
- Number
- 3
- Start Page
- 439
- End Page
- 450
- ISSN
- 0892-7626
- Abstract
- 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. © by author(s).
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