Equity incentives and conforming tax avoidance

• 成果类型: Article
• 署名作者: Kara, Mehmet C.; Mayberry, Michael A.; Rane, Scott G.
• 署名单位: University of Kansas; State University System of Florida; University of Florida
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12862
• 发表日期: 2023
• 页码: 1909-1936
• 关键词: STOCK OPTION PORTFOLIOS; Risk-taking incentives; earnings management; managerial incentives; empirical-evidence; ceo incentives; AGENCY COSTS; COMPENSATION; SENSITIVITIES; OWNERSHIP

摘要

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.