Do Corporate Taxes Affect Executive Compensation?

79 Pages Posted: 20 Jun 2019

See all articles by Tobias Bornemann

Tobias Bornemann

Vienna University of Economics and Business - Department of Finance, Accounting & Statistics

Martin Jacob

WHU - Otto Beisheim School of Management

Mariana Sailer

Vienna University of Economics and Business

Date Written: June 13, 2019

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 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

Bornemann, Tobias and Jacob, Martin and Sailer, Mariana, Do Corporate Taxes Affect Executive Compensation? (June 13, 2019). 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 - Department of Finance, Accounting & Statistics ( email )

Welthandelsplatz 1
Vienna, 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

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