Do Corporate Taxes Affect Executive Compensation?
79 Pages Posted: 5 May 2020
Date Written: June 13, 2019
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 limited and unavoidable. We find that, rather than reduce remuneration, companies reduce precautionary savings, thereby increasing risk. This suggests that firms pass on the burden of increased taxes to shareholders. Our results shed light on the effects of reforms similar to the U.S. Tax Cuts and Jobs Act of 2017 and contribute to prior findings that argue for proactive regulation to limit executive compensation.
Keywords: Corporate taxes; tax incidence; executive compensation
JEL Classification: J33, H21, H22, M12
Suggested Citation: Suggested Citation