CEO Inside Debt Incentives and Corporate Tax Policy

43 Pages Posted: 19 Mar 2014

See all articles by Sabrina Chi

Sabrina Chi

Texas Tech University - Area of Accounting

Shawn X. Huang

Arizona State University (ASU) - School of Accountancy

Juan Manuel Sanchez

University of Texas at San Antonio

Date Written: March 16, 2014

Abstract

This paper examines the relation between CEO inside debt holdings (pension benefits and deferred compensation) and corporate tax avoidance. Because inside debt holdings are generally unsecured and unfunded liabilities of the firm, CEOs are exposed to risk similar to that faced by outside creditors. As such, theory suggests that inside debt holdings negatively impact CEO risk-appetite. To the extent that aggressive tax policies involve significant cash flow shortfalls, high cash flow volatility, and losses in firm and CEO reputation in the future, we expect that inside debt holdings will curb CEOs from engaging in risky tax strategies. Consistent with the prediction, we document a negative association between CEO inside debt holdings and tax avoidance. Overall, our results highlight the importance of investigating the implication of CEO debt-like compensation for firm tax policies.

Keywords: Inside Debt, Deferred Compensation, Incentives, Executive Compensation, Tax Aggressiveness, Tax Avoidance

JEL Classification: G00, H26, H25, J33, M41, M52

Suggested Citation

Chi, Sabrina and Huang, Shawn X. and Sanchez, Juan Manuel, CEO Inside Debt Incentives and Corporate Tax Policy (March 16, 2014). Available at SSRN: https://ssrn.com/abstract=2410454 or http://dx.doi.org/10.2139/ssrn.2410454

Sabrina Chi

Texas Tech University - Area of Accounting ( email )

P.O. Box 42101
Lubbock, TX 79409
United States

Shawn X. Huang (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

Juan Manuel Sanchez

University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States

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