Why Taxing Executives' Bonuses Can Foster Risk-Taking Behavior
Markus Lang () and
No 150, Working Papers from University of Zurich, Institute for Strategy and Business Economics (ISU)
Bonus taxes have been implemented to prevent managers from taking excessive risks. This paper analyzes the effects of taxing executives' bonuses in a principal--agent model. Our model shows that, contrary to its intention, the introduction of a bonus tax intensifies managers' risk-taking behavior and decreases their effort. The principal responds to a bonus tax by offering the manager a higher fixed salary but a lower incentive-based component (bonus rate).
Keywords: Principal-agent model; bonus tax; risk-taking; executive compensation; financial regulation (search for similar items in EconPapers)
JEL-codes: H24 J30 M52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-bec, nep-cta, nep-hrm, nep-pub and nep-reg
Date: 2011-10, Revised 2012-05
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Journal Article: Why Taxing Executives' Bonuses Can Foster Risk-Taking Behavior (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:iso:wpaper:0150
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