Do Corporate Taxes Affect Executive Compensation?

51 Pages Posted: 5 May 2020 Last revised: 24 Feb 2021

See all articles by Tobias Bornemann

Tobias Bornemann

Vienna University of Economics and Business

Martin Jacob

WHU - Otto Beisheim School of Management

Mariana Sailer

Vienna University of Economics and Business

Date Written: February 23, 2021

Abstract

The limitation of executive compensation has been a matter of public and policy debate for at least 20 years. We examine a first-time regulatory action where the deductibility of the total value of executive compensation is unavoidably limited. We find no average effects on pay growth for executives. However, pay growth decreases for new executives and very distinct groups of incumbent managers, indicating that they are affected by the deductibility limit. Additionally, the contract durations of incumbent executives decrease after renegotiation. We further find that affected firms experience cuts in investment and research and development. Our results could shed light on other reforms, such as the Tax Cuts and Jobs Act of 2017, indicating that the effectiveness of such reforms in restricting executive pay is rather limited.

Keywords: Corporate taxes; tax incidence; executive compensation

JEL Classification: J33, H21, H22, M12

Suggested Citation

Bornemann, Tobias and Jacob, Martin and Sailer, Mariana, Do Corporate Taxes Affect Executive Compensation? (February 23, 2021). WU International Taxation Research Paper Series No. 2020-09, Available at SSRN: https://ssrn.com/abstract=3403486 or http://dx.doi.org/10.2139/ssrn.3403486

Tobias Bornemann

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Martin Jacob (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

Mariana Sailer

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
404
Abstract Views
2,501
rank
89,900
PlumX Metrics