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Management equity incentives and corporate tax avoidance: Moderating role of the internal control

INTRODUCTION: Under the modern enterprise system, the principal-agent relationship can cause a conflict of interest between the two power counterparts, thus affecting the degree of corporate tax avoidance. As a tool to align the interests of management and owners, management equity incentives can al...

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Autores principales: Wenwu, Xie, Khurram, Muhammad Usman, Qing, Lian, Rafiq, Asia
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Frontiers Media S.A. 2023
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9923498/
https://www.ncbi.nlm.nih.gov/pubmed/36794087
http://dx.doi.org/10.3389/fpsyg.2023.1096674
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author Wenwu, Xie
Khurram, Muhammad Usman
Qing, Lian
Rafiq, Asia
author_facet Wenwu, Xie
Khurram, Muhammad Usman
Qing, Lian
Rafiq, Asia
author_sort Wenwu, Xie
collection PubMed
description INTRODUCTION: Under the modern enterprise system, the principal-agent relationship can cause a conflict of interest between the two power counterparts, thus affecting the degree of corporate tax avoidance. As a tool to align the interests of management and owners, management equity incentives can alleviate the conflict of interests brought about by the separation of powers and, therefore, may influence corporate tax avoidance. OBJECTIVES AND METHODS: We examine the relationship between management equity incentives and corporate tax avoidance from both theoretical and empirical perspectives by using data from Chinese A-share listed companies from 2016 to 2020. Firstly, the effect of management equity incentives on tax avoidance is theoretically and normatively analyzed. Secondly, examine the effectiveness of moderating the effect of internal control and distinguishing the ownership of enterprises’ nature through regression analysis. RESULTS: (1) There is a positive relationship between management equity incentives and corporate tax avoidance which means, more the stock incentive offered to executives, the more likely corporations are to pursue tax avoidance strategies aggressively. (2) Internal control deficiencies enhance the positive relationship between equity incentives and enterprise tax avoidance behavior. Therefore, in Chinese enterprises, the lack of an internal control system and the failure of internal control measures are prevalent, and such loopholes can intensify the tax avoidance behavior that arises when executives are subject to equity incentives. (3) The influence of management equity incentives on enterprise tax avoidance behavior is greater in state-owned (SOE) than private enterprises. State-owned enterprises are more likely to increase enterprise tax avoidance behavior when management is subject to equity incentives for reasons such as strict performance requirements, lower regulatory oversight, and less interference from negative information. Finally, our findings have significant implications for policymakers/regulators, public companies, investors, standard setters, managerial labor markets, and the welfare of the overall economy.
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spelling pubmed-99234982023-02-14 Management equity incentives and corporate tax avoidance: Moderating role of the internal control Wenwu, Xie Khurram, Muhammad Usman Qing, Lian Rafiq, Asia Front Psychol Psychology INTRODUCTION: Under the modern enterprise system, the principal-agent relationship can cause a conflict of interest between the two power counterparts, thus affecting the degree of corporate tax avoidance. As a tool to align the interests of management and owners, management equity incentives can alleviate the conflict of interests brought about by the separation of powers and, therefore, may influence corporate tax avoidance. OBJECTIVES AND METHODS: We examine the relationship between management equity incentives and corporate tax avoidance from both theoretical and empirical perspectives by using data from Chinese A-share listed companies from 2016 to 2020. Firstly, the effect of management equity incentives on tax avoidance is theoretically and normatively analyzed. Secondly, examine the effectiveness of moderating the effect of internal control and distinguishing the ownership of enterprises’ nature through regression analysis. RESULTS: (1) There is a positive relationship between management equity incentives and corporate tax avoidance which means, more the stock incentive offered to executives, the more likely corporations are to pursue tax avoidance strategies aggressively. (2) Internal control deficiencies enhance the positive relationship between equity incentives and enterprise tax avoidance behavior. Therefore, in Chinese enterprises, the lack of an internal control system and the failure of internal control measures are prevalent, and such loopholes can intensify the tax avoidance behavior that arises when executives are subject to equity incentives. (3) The influence of management equity incentives on enterprise tax avoidance behavior is greater in state-owned (SOE) than private enterprises. State-owned enterprises are more likely to increase enterprise tax avoidance behavior when management is subject to equity incentives for reasons such as strict performance requirements, lower regulatory oversight, and less interference from negative information. Finally, our findings have significant implications for policymakers/regulators, public companies, investors, standard setters, managerial labor markets, and the welfare of the overall economy. Frontiers Media S.A. 2023-01-30 /pmc/articles/PMC9923498/ /pubmed/36794087 http://dx.doi.org/10.3389/fpsyg.2023.1096674 Text en Copyright © 2023 Wenwu, Khurram, Qing and Rafiq. https://creativecommons.org/licenses/by/4.0/This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
spellingShingle Psychology
Wenwu, Xie
Khurram, Muhammad Usman
Qing, Lian
Rafiq, Asia
Management equity incentives and corporate tax avoidance: Moderating role of the internal control
title Management equity incentives and corporate tax avoidance: Moderating role of the internal control
title_full Management equity incentives and corporate tax avoidance: Moderating role of the internal control
title_fullStr Management equity incentives and corporate tax avoidance: Moderating role of the internal control
title_full_unstemmed Management equity incentives and corporate tax avoidance: Moderating role of the internal control
title_short Management equity incentives and corporate tax avoidance: Moderating role of the internal control
title_sort management equity incentives and corporate tax avoidance: moderating role of the internal control
topic Psychology
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9923498/
https://www.ncbi.nlm.nih.gov/pubmed/36794087
http://dx.doi.org/10.3389/fpsyg.2023.1096674
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