Executive Salary Regulation And Corporate Tax Avoidance

State-owned enterprises play a role of ballast in China’s economic development.Based on the principal-agent theory and incentive theory,an effective executive compensation contract mechanism is the guarantee to reduce the principal-agent cost and encourage executives to better manage the enterprise.With the gradual deepening of the reform of state-owned enterprises in China,the executive compensation system of state-owned enterprises has also undergone comprehensive reform,and gradually formed a market-oriented compensation contract system for the executives of state-owned enterprises.The Guiding Opinions on Further Standardizing the Remuneration Management of Principals of Central Enterprises issued on September 16,2009 and the Reform Plan of the Remuneration System of Principals of Central Enterprises issued on August 29,2014 are the two most representative reforms in the remuneration reform of senior executives of state-owned enterprises.The central enterprises were the main body of the two reforms,and other state-owned enterprises followed.Domestic scholars have fully explored whether the two "salary restriction orders" have reached the policy purpose of restricting the remuneration of senior executives in state-owned enterprises.However,as the helm of enterprises,the regulation of the remuneration of senior executives may have the effect of "pulling the trigger and moving the whole body" on the company as a whole.As an important policy tool for the country to provide public goods to the society and meet the common needs of society,tax is of great significance to the smooth economic cycle of the country.Therefore,it is of great significance to study the impact of the implementation of the "salary limit order" on the tax avoidance degree of state-owned enterprises,and to improve the compensation contract mechanism of state-owned enterprise executives and collect taxes as planned.Based on the two salary limit orders issued in 2009 and 2014 as quasi-natural experiments,this paper designs a double difference model to test the impact of the implementation of these two salary control policies on tax avoidance of state-owned enterprises,and finds out the "invalid" of the 2009 salary limit order and the possible transmission path of the reduction of tax avoidance of state-owned enterprises after the 2014 salary limit order by comparing the contents of the two policies.Under the 2009 salary limit order,executives tried to increase the degree of internal and external information asymmetry of enterprises through tax avoidance due to the reduction of explicit income,thus increasing implicit income such as on-the-job consumption,and wanted to improve enterprise performance through tax avoidance due to the increase of short-term salary performance sensitivity,thus increasing their own explicit income.These two motives promoted the improvement of tax avoidance of state-owned enterprises.By strengthening the promotion incentive of senior executives and reducing the short-term salary performance sensitivity of executives,the 2014 salary limit order restrains the incentive of senior executives to avoid tax,and thus reduces the degree of tax avoidance of state-owned enterprises.In addition,the greater the intensity of tax collection and management in the region where the enterprise is located,the higher the risk cost of tax avoidance for executives,and the stronger the inhibitory effect of the 2014 salary limit order on corporate tax avoidance.By comparing the differentiated effects of these two salary limit orders on tax avoidance in state-owned enterprises,we can find that changing the incentive methods and evaluation systems of executives can effectively correct the behavior patterns of executives.The heterogeneity test shows that compared with large-scale state-owned enterprises,central enterprises,state-owned enterprises with good internal control quality and monopolistic state-owned enterprises,the2014 wage limit order has a greater inhibitory effect on the degree of tax avoidance of small-scale state-owned enterprises,local state-owned enterprises,state-owned enterprises with poor internal control quality and competitive state-owned enterprises.In terms of robustness analysis,the basic regression passed the parallel trend test and the placebo test,and the regression results still met expectations after replacing the measurement indicators of the explained variable enterprise tax avoidance.Based on the above research conclusions,this article proposes the following four policy recommendations:(1)Establish a scientifically feasible executive incentive mechanism.Without other policy support,it is not feasible to restrict monetary compensation alone.The current salary situation of state-owned enterprise executives with "skyrocketing salaries" and "self determined salaries" should be reformed and addressed as soon as possible.Reducing the salary gap can promote social equity and unleash enterprise vitality.However,a reasonable and scientific salary system should be developed based on the actual situation,such as increasing the implicit work benefits of executives,increasing long-term incentive forms such as equity incentives,and establishing a more sound promotion and assessment mechanism,Finding a balance between reducing efficiency losses and promoting social equity.(2)Strengthen internal control of state-owned enterprises and standardize their tax planning methods.It can be seen that under the 2014salary limit order,enterprises still have some room for tax avoidance and rent-seeking.Therefore,it is necessary to strengthen internal control,strengthen the supervision and constraints of the board of directors,supervisory board,and relevant internal committees,prevent internal behavior that executives may make based on their own information advantages,and avoid tax planning becoming a good means for executives to increase their own income.(3)Improve tax laws and regulations,and strengthen tax collection and management.At the institutional level,on the one hand,it is necessary to clarify the interpretation of various provisions of the tax law,avoid ambiguity,and prevent enterprises from distorting the interpretation of unclear aspects of the tax law for tax avoidance.On the other hand,the problems discovered in the process of tax collection and management cannot be limited to the surface,but should be further improved through specific regulations related to tax laws,and further improved during the implementation of tax laws.At the execution level,external supervision can strengthen the assessment of the completion and quality of tax tasks by tax collection and management departments.In terms of internal incentives,local independent tax categories can be created to motivate local governments to open up tax sources in a reasonable manner and reduce tax competition between regions.(4)Standardize the disclosure system of compensation information for senior executives in state-owned enterprises.Increase the disclosure of executive compensation information,make all executive compensation information transparent,and truly implement the executive compensation system under the sun.Through external supervision and the vigilance of executives themselves,form internal and external forces,fundamentally solve the problem of unreasonable executive compensation.