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| Author: | Florou, A. |
| Title: | The role of taxes in compensation: a case of shareholder expropriation |
| Journal: | European Accounting Review
2010 : JUN, VOL. 19:2, p. 343-374 |
| Index terms: | Greece tax impact compensation shareholders directors |
| Language: | eng |
| Abstract: | This paper utilizes a unique feature of the Greek institutional environment, whereby alternative cash compensation payments to directors are taxed differently from the viewpoint of both personal and corporate taxes. Board directors are able to receive cash compensation either in the form of taxable salary or in the form of tax-free profit distributions. Salary payments are deductible for corporate tax purposes whereas profit contributions are not, which makes a unit of profit distribution more costly to shareholders than a unit of salary. Ceteris paribus, rational directors prefer profit distribution to salary, since in the former case their personal taxes are paid by shareholders. This setting is used to document that board directors increase their net compensation by shifting their personal taxes to outside shareholders, who consequently earn lower after-tax income. |
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