| Using a sample of companies that have invested in bank-owned life insurance ("BOLI"), this paper documents a positive relation between BOLI and the portion of managers' compensation comprised of employee stock options. Using BOLI as a proxy for the overall tax sheltering activity of the sample firms, the results suggest that stock options generally encourage managers to invest in corporate tax shelters. Further, motivated by recent theoretical analysis, the paper considers whether the relation between options and tax shelters is dependent upon the underlying governance characteristics of the sample companies. After segregating the sample based on various measures of governance quality, the results consistently fail to support a statistically significant difference in the relation between options and BOLI for well-governed firms, relative to poorly-governed firms. |
