CEO Inside Debt Incentives and Corporate Tax Sheltering

Abstract

This paper examines the relation between CEO inside debt holdings (pension benefits and deferred compensation) and corporate tax sheltering. Because inside debt holdings are generally unsecured and unfunded liabilities of the firm, CEOs are exposed to risk similar to that faced by outside creditors. As such, theory (Jensen and Meckling [1976]) suggests that inside debt holdings negatively impact CEO risk-appetite. To the extent that corporate tax shelters are likely to result in high cash flow volatility in the future, we expect that inside debt holdings will curb CEOs from engaging in tax shelter transactions. Consistent with the prediction, we document a negative association between CEO inside debt holdings and tax sheltering. Additional analyses suggest that the effect of inside debt on tax sheltering is more (less) pronounced in the presence of high default risk and liquidity threats (cash-out options in pension packages). Overall, our results highlight the importance of investigating the implication of CEO debt-like compensation for corporate tax policies.

Influence of Ownership Structure on the Determinants of Effective Tax Rates of Spanish Companies

“…Subsequently, this line of research has advanced, and researchers have proposed other focuses and incorporated new variables, as described in the review by Wilde and Wilson [10]. Several studies have considered management incentives [11][12][13][14][15][16], company governance activities [17][18][19][20][21][22][23][24][25], or ownership structure from various perspectives [26][27][28][29][30][31].…”

CEO Inside Debt and Accounting Conservatism

“…holdings and corporate risk taking. Chi et al (2017) show that CEOs with large inside debt holdings are less aggressive in tax planning. Taken together, these studies provide evidence in support of the argument that inside debt can reduce the agency costs of debt and mitigate managers' incentives to pursue risk-taking strategies.…”

“…2 Economic theory suggests that inside debt can align the interests of managers with debtholders and reduce their incentives to expropriate debtholders through asset substitution (Jensen and Meckling 1976;Edmans and Liu 2011). Recent studies have linked it empirically to a number of corporate policies and outcomes (Sundaram and Yermack 2007;Cassell et al 2012;Wei and Yermack 2011;Anantharaman et al 2013;Phan 2014;Chi et al 2017). However, little is known about whether inside debt affects firms' accounting choices.…”

Agressividade Tributária: Um Survey da Literatura

“…As evidências desta linha de investigação apontam para associações significativas entre vários traços individuais dos gestores e a agressividade fiscal das empresas, tais como: a experiência militar do gestor (Law & Mills, 2017); o narcisismo (Olsen & Stekelberg, 2016); a orientação política e agressividade pessoal (Chyz, 2013); o gênero de seus executivos e dos membros do conselho de administração (Francis, Hasan, Qiang Wu, & Meng Yan, 2014;Lanis, Richardson, & Taylor, 2017); a religiosidade do gestor (Boone, Khurana & Raman, 2013;Dyreng, Mayew & Williams, 2012); suas habilidades e capacidade gerencial (Koester, Shevlin & Wangerin, 2017); e o perfil de remuneração, pensão e incentivos compensatórios (Armstrong, Blouin & Larcker, 2012;Chi, Huang & Sanchez, 2017;Kubick & Masli, 2016).…”