The Research Of Executive Compensation Incentives,Internal Control Deficiencies And Tax Avoidance

The traditional view of tax avoidance believes that tax avoidance can form a tax saving effect,increase freely available cash flow,and increase after-tax income and corporate value.The view of tax avoidance agency believes that the complexity and concealment of tax avoidance provides an opportunity for executives to implement self-interest activities,which increases internal agency costs and does not necessarily increase corporate value.Executive compensation incentives play an indispensable role in modern corporate governance,and are an effective means to alleviate the agency problem between shareholders and management and reduce management's income from rent-seeking through tax avoidance activities.Internal control,as an internal governance mechanism,can affect all aspects of business operations,including tax avoidance.When the internal control failure caused internal control defects,a series of chain reactions were triggered: increasing corporate risk,increasing financing constraints,reducing the quality of earnings,and increasing the possibility of being issued non-standard audit opinions,which negatively affected tax avoidance.Based on this,this article intends to explore the impact of executive compensation incentives and internal control deficiencies on tax avoidance.This article takes 2012-2018 Shanghai and Shenzhen A-share listed companies as the research object,and discusses the impact of executive compensation incentives and internal control defects on tax avoidance.The results are found:(1)There is a significant negative correlation between executive compensation incentives and tax avoidance.When the salary is insufficient,executives intend to obtain private profits through tax avoidance and rent seeking.Increasing the level of executive compensation incentives will weaken the degree of tax avoidance.Executive compensation incentives reduce agency costs,inhibit tax avoidance caused by executive rent-seeking motives,and prevent damage to shareholders' interests.(2)After distinguishing the nature of property rights,it was found that the negative relationship between executive compensation incentives and tax evasion is more prominent in non-state-owned enterprises.As state-owned enterprise executives face more comprehensive evaluation systems and stricter administrative responsibilities,compared with salary incentives,they may care more about the benefits of political promotion.Therefore,the incentive to implement radical tax avoidance when salary is insufficient is weaker than that of non-state-owned enterprises.State-owned enterprise executives are less sensitive to compensation incentives than non-state-owned enterprises.(3)The existence of deficiencies in internal control will cause companies to implement more conservative tax avoidance.Conversely,the better the quality of internal control,the more efficient the various departments are in implementing tax avoidance coordination.While maintaining low risk,the more it contributes to gaining tax-saving benefits and increasing tax value.Internal control deficiencies have increased the difficulty of communication between corporate departments.The lack of professional suggestions has made it more difficult to achieve the concealment required by tax avoidance activities.Risk-neutral shareholders are more inclined to the long-term sustainable development of the company.To achieve compliance goals,expectations for tax avoidance will be much more conservative.(4)After introducing the interaction terms of internal control defects and executive compensation incentives,it was found that in the environment of worse internal governance,the negative correlation between the two is more obvious.This is because in a weak governance environment,underpaid executives are more likely to use tax avoidance to cover up their self-interest behavior in the absence of internal oversight.It can also be understood that when the compensation incentives ease the intensity of tax avoidance,the "bad signals" transmitted by internal control flaws will cause executives to face multiple pressures from the outside,thus biasing more cautious tax avoidance decisions.(5)In further research,the analysis of the impact of executive equity incentives on tax avoidance was supplemented,but the empirical results of the two were weak.The research results of this article have certain reference significance for guiding practice: One is to raise the level of executive compensation reasonably.An effective salary incentive system can suppress executives' rent-seeking,weaken their motivations for private gain,and help shareholders achieve regulatory goals.Secondly,improve the internal control of enterprises.A sound internal control system can obtain more net income after tax for the enterprise within the legal scope.Shareholders should urge the enterprise to rectify and repair internal control defects in a timely manner.Thirdly,distinguish the nature of property rights and set up different incentive and supervision mechanisms.Supervision measures for state-owned enterprises should be more diversified,information disclosure efforts should be strengthened,and a public supervision and company internal governance supervision mechanism should be implemented.