Do Corporate Taxes Affect Executive Compensation?

Publication: Working/Discussion PaperWU Working Paper

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.
Original languageEnglish
Place of PublicationVienna
PublisherWU Vienna University of Economics and Business
Publication statusPublished - 23 Feb 2021

Publication series

NameWU International Taxation Research Paper Series
No.2020-09

WU Working Paper Series

  • WU International Taxation Research Paper Series

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