Accessibility navigation

Executive cash compensation and tax aggressiveness of Chinese firms

Huang, W., Ying, T. and Shen, Y. ORCID: (2018) Executive cash compensation and tax aggressiveness of Chinese firms. Review of Quantitative Finance and Accounting, 51 (4). pp. 1151-1180. ISSN 1573-7179

Text - Accepted Version
· Please see our End User Agreement before downloading.


It is advisable to refer to the publisher's version if you intend to cite from this work. See Guidance on citing.

To link to this item DOI: 10.1007/s11156-018-0700-2


We examine the influence of corporate compensation policies on firms’ tax aggressiveness in an emerging market where executive compensation is primarily in cash form. Based on a hand-collected dataset of 958 firm-year observations of Chinese listed firms for the 2006-2012 period, we find that firms paying higher executive cash compensation are associated with lower tax aggressiveness. This relationship also holds for the excess cash compensation measures which control for executive shareholding, firm profitability, size, growth opportunity, and board independence. We further document that mutual funds ownership pressure firms paying higher compensation to reduce their tax aggressiveness, suggesting adverse selection by mutual funds on firms exhibiting risky tax avoidance activities. High leverage offsets the negative link between cash compensation and tax aggressiveness, indicating a complementary effect between debt and tax avoidance, and, hence, suggesting that creditor monitoring is weak. These results are robust to the system-GMM estimation, which simultaneously account for the endogeneity of executive compensation, tax aggressiveness, ownership and control, leverage, and corporate governance. Our findings on Chinese firms have important policy implications for developing countries around the world with concentrated ownership structure, weak institutional environment, widespread corruption, ineffective rule of law, and ongoing significant social and political transformation.

Item Type:Article
Divisions:Henley Business School > Business Informatics, Systems and Accounting
ID Code:74768
Uncontrolled Keywords:Tax aggressiveness; executive compensation; ownership; leverage; China


Downloads per month over past year

University Staff: Request a correction | Centaur Editors: Update this record

Page navigation