Do Corporate Taxes Affect Executive Compensation?

Accounting

Speaker:Martin Jacob, WHU
Date: Wednesday 3 April 2019
Time: 14:30 - 16:00
Location: Kolade Teaching Room, Building One

Further details

We examine the effect of corporate taxes on executive compensation. Theory is ambiguous whether corporate taxes can affect executive compensation. We exploit the 2014 tax reform in Austria that limited the deductibility of executive compensation. Using triple difference estimations that compare Austria to other countries to control for general global compensation trends, we find that corporate taxes have no discernable effect on executive compensation. This non-finding is robust to supplemental tests and multiple cross-sectional analyses. Instead, we find evidence that firms reduce financial slack suggesting that shareholders and not executives bear the burden of corporate taxes on executive compensation.