Do (some of) the tax savings derived from Profit-Shifting go to increase the compensation of the board of directors?

Abstract

Taking a sample of listed non-financial Spanish companies between 2013 and 2018, this paper examines whether the artificial Profit-Shifting activity by multinationals to reduce taxes may increase the remuneration of the members of the board of directors. In addition to this main variable of interest related to Profit-Shifting, the analyses incorporate a variable that controls for companies being on the Ibex-35 stock market index, as an apparently chief determinant of the level of remuneration of directors. The results suggest that a remuneration premium exists derived from the joint effect of Profit-Shifting and being on the Ibex-35 stock market index, at least for executive directors. By economic sectors, extra remuneration coming from Profit-Shifting is found only for executive directors in energy and construction firms. Also, being on the Ibex-35 index has a positive effect on remuneration for both executive and non-executive directors in trade and services firms. The results by economic sector are seemingly correlated with the share of intangible assets by industry. JEL: F23; H25; H26; H87; M12