Examining the Immediate Effects of Recent Tax Law Changes on the Structure of Executive Compensation

38 Pages Posted: 17 Jun 2019

See all articles by Lisa De Simone

Lisa De Simone

Stanford Graduate School of Business

Charles McClure

University of Chicago Booth School of Business

Bridget Stomberg

Indiana University - Kelley School of Business

Date Written: June 7, 2019

Abstract

We exploit a December 22, 2017 law change to examine the relation between corporate taxes and executive compensation. The so-called “Tax Cuts and Jobs Act” (TCJA) repealed a long-standing exception that previously allowed publicly-traded companies to deduct executives’ qualified performance-based compensation in excess of $1 million. The new regime is effective for tax years beginning after December 31, 2017. Using a difference-in-differences design to examine executive compensation paid in fiscal years 2017 and 2018, we find no evidence that firms impacted by the TCJA in their 2018 fiscal years changed total compensation, compensation mix, or pay-performance sensitivity relative to control firms that are not subject to the new regime until their 2019 fiscal years. These findings suggest Congress may have structured the law inefficiently or that Treasury delayed guidance for too long, potentially causing delays in firms’ responses.

Suggested Citation

De Simone, Lisa and McClure, Charles and Stomberg, Bridget, Examining the Immediate Effects of Recent Tax Law Changes on the Structure of Executive Compensation (June 7, 2019). Kelley School of Business Research Paper No. 19-28. Available at SSRN: https://ssrn.com/abstract=3400877 or http://dx.doi.org/10.2139/ssrn.3400877

Lisa De Simone

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-3874 (Phone)
650-724-3083 (Fax)

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/lisa-de-simone

Charles McClure

University of Chicago Booth School of Business ( email )

7737024885 (Phone)

Bridget Stomberg (Contact Author)

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

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