CEO After-Tax Compensation Incentives and Corporate Tax Avoidance

45 Pages Posted: 19 Dec 2009 Last revised: 4 Nov 2015

See all articles by Fabio B. Gaertner

Fabio B. Gaertner

University of Wisconsin - Madison - Department of Accounting and Information Systems

Date Written: May 14, 2013

Abstract

I examine the association between CEOs’ after-tax incentives and their firms’ level of tax avoidance. Economic theory holds that firms should compensate CEOs on an after-tax basis when the expected tax savings generated from additional incentive alignment outweigh the incremental compensation demanded by CEOs for bearing additional tax-related compensation risk. Using hand-collected data from proxy statements, I find a negative relation between the use of after-tax incentives and effective tax rates. I also find a positive association between the use of after-tax incentives and CEO cash compensation, suggesting that CEOs who are compensated on an after-tax basis demand a premium for bearing additional risk.

Keywords: Tax avoidance, after-tax incentives, CEO incentives, executive compensation

JEL Classification: H25, M41, M52

Suggested Citation

Gaertner, Fabio B., CEO After-Tax Compensation Incentives and Corporate Tax Avoidance (May 14, 2013). Contemporary Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1524390 or http://dx.doi.org/10.2139/ssrn.1524390

Fabio B. Gaertner (Contact Author)

University of Wisconsin - Madison - Department of Accounting and Information Systems ( email )

School of Business
975 University Avenue
Madison, WI 53706
United States

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