Corporate tax avoidance and high-powered incentives

• 成果类型: Article
• 署名作者: Desai, MA; Dharmapala, D
• 署名单位: Harvard University; National Bureau of Economic Research; University of Connecticut
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2005.02.002
• 发表日期: 2006
• 页码: 145-179
• 关键词: incentive compensation; corporate governance; Tax avoidance; Stock options; Tax evasion

摘要

This paper analyzes the links between corporate tax avoidance and the growth of high-powered incentives for managers. A simple model demonstrates the role of feedback effects between tax sheltering and managerial diversion in determining how high-powered incentives influence tax sheltering decisions. A novel measure of corporate tax avoidance (the component of the book-tax gap not attributable to accounting accruals) allows for an investigation of the link between tax avoidance and incentive compensation. Increases in incentive compensation tend to reduce the level of tax sheltering, in a manner consistent with a complementary relationship between diversion and sheltering. In addition, this negative effect is driven primarily by firms with relatively weak governance arrangements., confirming a central prediction of the model. These results can help explain the growing cross-sectional variation among firms in their levels of tax avoidance, the undersheltering puzzle, and why large book-tax gaps are associated with subsequent negative abnormal returns. (c) 2005 Elsevier B.V. All rights reserved.