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Executive inside debt and corporate tax avoidance

  • This study examines the relation between executives’ inside debt holdings and corporate tax risk. As executives’ inside debt holdings are unsecured and unfunded, they should align executives’ interests with those of outside debtholders and incentivize executives to act more conservatively toward risk. Hence, inside debt should also reduce the risk of tax avoidance activities. Consistent with this prediction, we find that executive inside debt holdings are negatively related to tax risk. Further, this relation becomes stronger at higher levels of tax risk. We also find that the relation between insider debt and tax risk is stronger for firms that are not facing liquidity constraints and among well-governed firms. The latter result implies that institutional ownership and inside debt compensation are substitutes in reducing tax risk. Overall, our results suggest that part of the observed cross-sectional difference in tax avoidance can be explained by a reduction in tax risk that is related to executive inside debt holdings.

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Metadaten
Author:Anna Alexander, Martin Jacob
URN:urn:nbn:de:hbz:992-opus4-6486
DOI:https://doi.org/10.2139/ssrn.2768888
Publisher:WHU - Otto Beisheim School of Management
Place of publication:Vallendar
Document Type:Working Paper
Language:English
Date of Publication (online):2018/06/09
Date of first Publication:2016/04/01
Release Date:2018/06/09
Tag:Corporate Governance; Managementvergütung; Steuerrisiko
Corporate governance; Executive compensation; Tax risk
Page Number:44
Institutes:WHU Centers / WHU Financial Accounting & Tax Center (FAccT Center)
JEL-Classification:G Financial Economics / G3 Corporate Finance and Governance / G34 Mergers; Acquisitions; Restructuring; Corporate Governance
H Public Economics / H2 Taxation, Subsidies, and Revenue / H26 Tax Evasion
M Business Administration and Business Economics; Marketing; Accounting / M4 Accounting and Auditing / M41 Accounting
M Business Administration and Business Economics; Marketing; Accounting / M5 Personnel Economics / M52 Compensation and Compensation Methods and Their Effects
Licence (German):Copyright for this publication