CEO Incentives and Product Development Innovation: Insights from Trademarks

Faurel, Lucile; Qin, Li; Shanthikumar, Devin M.; Teoh, Siew Hong

doi:10.2139/ssrn.2482909

Cited by 10 publications

(3 citation statements)

References 90 publications

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“…Prior evidence suggests that executives influence tax avoidance strategies and that equity incentives are associated with nonconforming tax avoidance (Dyreng et al, 2010; Rego & Wilson, 2012). Consistent with theory, empirical evidence suggests that linking managerial wealth to stock price volatility through vega increases managerial risk‐taking (Coles et al, 2006; Faurel et al, 2021; Mao & Zhang, 2016). Given these strong theoretical and empirical links, we present our Hypothesis 1 (H1) in the alternative form:Hypothesis Executives' wealth sensitivity to stock price volatility is positively associated with conforming tax avoidance.…”

Section: Prior Literature and Hypothesis Developmentmentioning

confidence: 84%

“…Next, we examine how executives' wealth sensitivity to stock price volatility is associated with conforming tax avoidance. Empirical evidence suggests that linking managerial wealth to stock price volatility results in increased managerial risk‐taking (Faurel et al, 2021; Mao & Zhang, 2016). Prior research also finds that executives influence tax strategies and that executives' wealth sensitivity to stock price volatility is associated with nonconforming tax avoidance (Dyreng et al, 2010; Mayberry et al, 2023; Rego & Wilson, 2012).…”

Section: Introductionmentioning

confidence: 99%

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Equity incentives and conforming tax avoidance

Kara

Mayberry

Rane

2023

Contemporary Accting Res

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We examine how executive equity incentives are associated with firms' conforming tax avoidance. Conforming tax avoidance is unique compared to nonconforming tax avoidance in that it decreases tax liabilities by reducing pretax income. Thus, conforming tax avoidance presents a unique set of consequences with important links to both risk and value‐creation incentives. Consistent with risk‐taking incentives increasing conforming tax avoidance, we find that linking executive wealth to stock price volatility (i.e., vega) is positively associated with conforming tax avoidance. We also find that linking executive wealth to stock price (i.e., delta) is negatively associated with conforming tax avoidance. The results of our cross‐sectional tests suggest that the negative association between delta and conforming tax avoidance is predominantly driven by a risk aversion effect rather than a value‐creation effect. Our findings add to the literature on the relation between tax avoidance and executive compensation, as well as the trade‐off between book and taxable income.

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Section: Prior Literature and Hypothesis Developmentmentioning

confidence: 84%

Section: Introductionmentioning

confidence: 99%

Equity incentives and conforming tax avoidance

Kara

Mayberry

Rane

2023

Contemporary Accting Res

View full text Add to dashboard Cite

show abstract

“…Lev (2001) notes that innovation is mainly achieved by investment in intangible capital. R&D expenditures and the number of patent applications capture product innovation and development, but do so mostly for high tech companies (Faurel et al, 2016). Hence, to capture intellectual property associated with a broader set of innovative activities in a large set of firms, I use SG&A expense.…”

Section: Measures Of Proprietary Costmentioning

confidence: 99%