Executive compensation corporate tax aggressiveness and firm value an empirical study of SandP BSE 500 index companies

Abstract

The existing literature on corporate tax aggressiveness majorly relates to developed economies of the world. The present study is a nascent attempt to explore executive compensation as a determinant of corporate tax aggressiveness and the firm value impact of corporate tax aggressiveness in context of the Indian emerging economy. Further, the moderating effect of corporate governance on both these relationships has also been explored. The sample comprises a subset of the SandP BSE 500 Index companies for five financial years from FY 2014-15 to FY 2018-19. The data sources include the corporate database Prowess, annual reports of companies, and the finance bills available in the annual union budget. Panel data regression has been invoked to perform the data analysis, and the system generalised method of moments approach of the dynamic panel data estimation procedure has been employed to check for robustness and endogeneity. The econometric analysis evinces a significant negative impact of fixed executive compensation and no significant impact of variable executive compensation on corporate tax aggressiveness for both CEOs and CFOs. The analysis also indicates that corporate tax aggressiveness has a significant negative impact on firm value. The results for the moderating influence of corporate governance indicate a significant and positive impact of several governance measures on the relationship between executive compensation and corporate tax aggressiveness as well as the relationship between corporate tax aggressiveness and firm value. Based on these results, specific suggestions have been made to mitigate the agency problems related to corporate tax aggressiveness in India. newline