On The Relationship Between Management Incentives And Corporate Income Tax Avosion

In the background which tax avosion problem is quite grave, with the question that how the management incentives affect the corporate income tax avosion. We research the relationship between management incentives and corporate income tax avosion. First, we analyze the related research on tax avosion, management incentives, and the relationship between them at home and abroad. Then, we develop a theoretical model about the relationship between management incentives and tax avosion, based on the principal agent theory. Finally, we test our model and hypothesis by empirical research.The main propositions of this paper are as follows. (1) How to develop the index that measures the corporate income tax avosion to help our empirical research, in the condition that related research is quite inadequate at home and abroad? (2) How management incentives level and management incentives structure affect the level of corporate income tax avosion, and beside those, how other variables affect the level of tax avosion? (3) In different corporate governance environment, the costs of rent for manages are different. And the behavior of seeking rent is linked with the activity of tax avosion. Then, what's the role of corporate governance in the relationship between management incentives level and corporate income tax avosion?The main conclusions of this paper are as follows. (1)There is corporate income tax avosion in the listed company in our country. And there is difference in different industries and different years. The levels of corporate income tax avosion are comparatively high in the industries where there are much tax incentives. And the level of corporate income tax avosion shows irregular trends in the years of 2002-2006, though the level of corporate governance and management incentives are rising. (2)The relationship between management incentives level and corporate income tax avosion level is affected by the level of corporate governance. In well governed firms, managers face the high rent costs. So managers can not seek more rent income by being involved in more corporate income tax avosion activity. The main motivation for corporate income tax avosion comes from the high incentives that the investors provide. In this condition, the negative feedback between rent seeking and corporate income tax avosion will appear. We can get the outcome of Optimal Incentive Theory. That is the rent seeking activity is becoming weaker and the corporate income tax avosion activity is becoming stronger, with the management incentives level getting higher. However, in the poor governed firms, seeking rent become easier for managers. Managers will take the initiative to be involved more corporate income tax avosion activity to get more rent. In this condition, the positive feedback between rent seeking and tax avosion will appear. Any rising in management incentives level will reduce the rent seeking activity and thus reduce the tax avosion activity. (3)On the relationship between management incentives structure and corporate income tax avosion, we get the conclusion that stock option incentives ratio positively affects the level of tax avosion, and the fixed incentives ratio negatively affects the level of tax avosion. This conclusion gives us the inspiration that stock option incentives play a very important role in enhancing corporate value. (4)There are positive relationships between LNAS,ROE,TR and tax avosion; and there are negative relationships between RLA,NDTS,RSA and tax avosion.