Research On The Effect Of CFO Compensation Incentives On Tax Avoidance Of Listed Companies

How to improve the management incentive mechanism is the core of corporate governance.Based on the panel data of China's Shanghai and Shenzhen A-share manufacturing listed companies in 2008-2014,using two-way fixed-effects model was adopted to examine the relationship between chief financial officer(CFO)compensation incentives and tax avoidance of listed companies.On the one hand,this paper examines the impact of the CFO's absolute compensation incentive(total pay in the reporting period)on corporate tax avoidance On the other hand,this paper constructs a CFO-based compensation gap index to evaluate the impact of relative CFO's relative compensation incentives on corporate tax avoidance.The relative compensation incentives of CFO is divided into vertical compensation gap(CFO-general compensation gap)and horizontal compensation gap(Pay gap between CFO and core executives).Study finds that the CFO's total pay in the reporting period and vertical pay gap are significantly and negatively correlated with the degree of corporate tax avoidance,while the horizontal pay gap does not affect the corporate tax avoidance.Further heterogeneity tests found the following points,firstly,the total pay of the CFO in the low-pay group was significantly negatively correlated to the degree of tax avoidance.Secondly,Longitudinal pay gap and corporate tax avoidance levels were significantly negatively correlated only in the low pay gap group.While taking into account the CFO holding value into the vertical pay gap,this significantly negatively correlated will happen only in the high pay gap group.Thirdly,compared with state-owned enterprises,the impact of non-state-owned enterprises CFO pay incentives on corporate tax avoidance is more obvious.Fourthly,high debt significantly enhances the negative impact of CFO pay incentives on corporate tax avoidance.Fifthly,engaging the "Big Four" to provide audit services to enterprises significantly inhibits the negative impact of the CFO pay incentives on corporate tax avoidance.Finally,in order to control the endogeneity,this paper refers to the practice of Yu Linhui et al.(2014),and takes the core explanatory variables as the instrumental variables according to the mean of the year,region and sub-industry classification of enterprises,uses the 2SLS method for IV estimation,finding that the basic findings of this article still holds.The conclusion of this paper has improved the management incentive mechanism and the study on the impact of executive compensation Incentives on corporate tax avoidance in China and also provided empirical evidence that incentive compatibility is an effective way to solve the entrusted agency problem.