The Research Of Executive Compensation Incentive,Tax Avoidance And Inefficiency Investment

Traditional theory holds that corporate tax avoidance will reduce the tax burden,decrease the free cash outflow and finally increase the company's after-tax profits.However,recent tax agent concept show that tax avoidance also cause non-tax costs.Tax avoidance activities would not necessarily be able to enhance its corporate value.After the tax reform in China,Chinese enterprises enjoy relatively wide range of tax benefits,this also led corporate tax avoidance activities.Since the economic goes downward,and the capital market are not perfect,the phenomenon of inefficient investment are common in China.Based on the concept of tax agents,we first investigates the effect of corporate tax avoidance on inefficient investment.And this paper expands the existing research.Further,as an important corporate governance mechanism,executive compensation incentive can suppressed managements' self-interest and reduce the information asymmetry.So this paper investigate the relationship of executive compensation incentive,tax avoidance and inefficiency investment,especially the effect of executive compensation incentive on the relationship between tax avoidance activities and inefficient investment.The paper's empirical research is based on the listed companies' financial data during the period of 2007-2014,and based on the theory of principal-agent theory,asymmetric information theory and other theories,and finally find that:(1)tax avoidance will lead to inefficient investment.Specially,tax avoidance lead to over investment,but not lead to under-investment;(2)executive compensation incentive will reduce over investment,but it has no significant relationship with under investment.In other words,the greater the intensity of executive compensation incentive will reduce the degree of over investment,but it has not influence on under investment;(3)executive compensation incentives that could reduce tax avoidance activities;(4)the executive compensation incentive can relieve the degree of over investment which cause by tax avoidance.However,executive compensation incentive doesn't effect on the relationship between tax avoidance and under investment.This paper has a certain theoretical and practical significance.On one hand,this paper divide inefficient investment into two aspects which is over investment and under investment.We both investigate the relationship between over-investment and tax avoidance and the relationship between under-investment and tax avoidance.In addition,few people put executive compensation incentive,tax avoidance and inefficient investment into the same framework to investigate their relationship,this paper enriches the research on this matter.On the other hand,this paper discusses the economic consequences of tax avoidance and examined the effects of executive compensation incentive and put forward the corresponding policy recommendations to help improve the investment of Chinese listed companies from the different perspectives.