Taxation and agency conflicts between firm owners and managers: a review

Abstract

When analyzing the influence of taxation on agency conflicts between firm owners and managers, one can draw on theoretical principal-agent literature from various research fields. In recent years, this interdisciplinary research has grown significantly covering research with regards to optimal compensation, investment decisions, tax avoidance and transfer pricing while analyzing the effects of corporate income taxes, wage taxes, bonus taxes and shareholder taxes. Our paper provides a comprehensive review of analytical literature that studies the influence of taxation on agency conflicts between firm owners and managers. Above and beyond summarizing research findings, we discuss how taxes are commonly implemented in We thank Claire Estebanez, Joachim Gassen, Thomas Gehrig, Rainer Niemann, Thomas Pfeiffer, and two anonymous referees for their valuable comments and suggestions. We are grateful to participants at the VHB conference 2016, the DART Accounting Workshop at the University of Graz and a research seminar at the University of Vienna.

The impact of ownership structure and the board of directors’ composition on tax avoidance strategies: empirical evidence from Jordan

“…Accordingly, the agent is responsible for fulfilling the tasks that are assigned by the principal (De Andres et al , 2005); this is the so-called principal–agent model. Specifically, the separation of ownership and control among a firm’s managers and owners causes conflicts of interest (Bauer and Kourouxous, 2018).…”

“…Specifically, agency theory predicts that tax avoidance is associated with more manager–shareholder conflicts and lower share values (Hong et al , 2017). Many studies have posited arguments regarding the relationships between tax avoidance and agency problems (Bauer and Kourouxous, 2018; Hanlon and Heitzman, 2010; Shackelford and Shevlin, 2001). Specifically, taxes change the information content and the incentive effect of managerial performance measures (Bauer and Kourouxous, 2018).…”

“…In general, tax-planning activities increase after-tax cash flows; hence, they ultimately enhance a firm’s value (Desai and Dharmapala, 2006). This motivates managers to engage in tax avoidance activities (Bauer and Kourouxous, 2018). In other words, it is possible for managers to hide some transactions, which may lead to an increased conflict of interest and an asymmetry in information between managers and shareholders in regard to tax content (Armstrong et al , 2015).…”

Pengaruh Kepemilikan Institusional Terhadap Penghindaran Pajak Perusahaan Manufaktur di Indonesia (2017-2019)

“…Dengan demikian, agen bertanggung jawab untuk memenuhi tugas-tugas yang diberikan oleh prinsipal, hal inilah yang disebut model principal-agent (De Andres et al, 2005). Pemisahan kepemilikan, kontrol antara manajer dan pemilik perusahaan menyebabkan konflik kepentingan (Bauer et al, 2018). Secara umum, aktivitas perencanaan pajak meningkatkan arus kas setelah pajak, pemilik kepentingan pada akhirnya meningkatkan nilai perusahaan (Desai & Dharmapala, 2006).…”

The Effect of Intervening Tax Avoidance on Leverage on Firm Value

“…Tax avoidance behavior can potentially trigger agency conflicts between the interests of managers and those of investors (Bauer et al, 2018). The company has reasons for practicing tax avoidance, namely, to reduce the tax debt that the company will pay later (Kubick et al, 2016).…”