Management Equity Incentive And Corporate Tax Avoidance

Taxation is an important part in corporate financial decisions.Meanwhile,tax is the main source of state revenue.But,corporate tax avoidance is widespread in the capital market.The separation of company ownership and management leads to the problem of principal-agent.Many scholars have studied how to alleviate the principal-agent problem between owners and operators from the perspective of salary.Equity incentive is a long-term bonus contract that can effectively alleviate the principal-agent problems.In China,public companies began to implement equity incentive policy in 2005.After 2010,more and more companies began to issue equity incentive plans.The number of equity incentive plans issued by Shanghai and Shenzhen A-share public companies in 2017 reached 446,which reached the peak since the implementation of equity incentive policy in China.Equity incentive makes managers have equity-based interests.Managers can operate companies as shareholders.Therefore,equity incentive will affect the financial decisions made by managers.The strategy of tax avoidance is an important financial decision in company.In this article,I study the impact on corporate tax avoidance from the perspective of management equity incentive.Then,I study the difference of the relationship in state owned enterprises(SOEs)and non-SOEs.Finally,I study the change of the relationship in lower financial income pressure and higher financial income pressure.In this article,I have a review of previous literature.Then,based on the theories of equity risk incentive,rent-seeking,interest convergence effect,expected utility and the implementation status of equity incentive,I put forward the hypothesis of the relationship between the degree of management equity incentive and the degree of corporate tax avoidance.The relationship has differences in SOEs and non-SOEs.And,the pressure of local financial income affects the relationship between the degree of management equity incentive and the degree of corporate tax avoidance as an external factor.In the empirical study,Shanghai and Shenzhen A-share public companies in 2009-2017 are selected as the research samples.And,I choose appropriate variables to measure the degree of management equity incentive and corporate tax avoidance.Then,I use relevant model to test the relationship between management equity incentive and corporate tax avoidance.I study the relationship between the degree of management equity incentive and the degree of corporate tax avoidance in two types of samples which divided into SOEs and non-SOEs.The appropriate variable is used to measure the pressure of local financial income.Then,I study the relationship between the degree of management equity incentive and the degree of corporate tax avoidance in two types of samples which divided into lower financial income pressure and higher financial income pressure.Finally,the robustness tests are carried out by replacing variables,eliminating some samples and using different regression methods.The results show that the conclusions are robust.Through the review of literature,theoretical analysis and empirical tests,this article reaches the following conclusions.(1)The degree of management equity incentive is negatively correlated with the degree of corporate tax avoidance.(2)Compared with SOEs,the negative correlation between the degree of management equity incentive and the degree of corporate tax avoidance is more significant in non-SOEs.(3)When the local financial income pressure is high,the negative correlation between the degree of management equity incentive and the degree of corporate tax avoidance is more significant.On the basis of the interest convergence effect and rent-seeking theory,the degree of management equity incentive is negatively related to the degree of corporate tax avoidance.The higher degree of management equity incentive,the more additional income obtained by managers,the more consistent interests between management and shareholders.In order to improve company's value and shareholders' income,the motivation of rent-seeking through tax avoidance declines,the degree of corporate tax avoidance decreases ultimately.Compared with SOEs,the implementation of equity incentive in non-SOEs is higher,and the negative correlation between the degree of management equity incentive and corporate tax avoidance is more significant in non-SOEs.The local financial income pressure affects the difficulty and cost of tax avoidance.When local financial income pressure is high,the cost of corporate tax avoidance increases,the motivation of tax avoidance weakens,and the negative correlation between the degree of management equity incentive and corporate tax avoidance is more significant.This article makes two primary contributions to the existing body of literature.(1)This article enriches the literature about the impact of management equity incentive on corporate tax avoidance.In the existing literature,the conclusion of the relationship between management equity incentive and corporate tax avoidance is not uniform.Especially,there are little studies on the relationship between them in China.Based on the data in China,this article enriches the literature about the relationship between management equity incentive and corporate tax avoidance.(2)This article studies the relationships between management equity incentive and corporate tax avoidance in different ownership structures and different environment of financial income pressure.This article enriches the dimensions of the influence of management equity incentive on corporate tax avoidance.