Wirtschaftswissenschaft
Martin Grossmann, Markus Lang, Helmut Dietl
Why Taxing Executives' Bonuses Can Foster Risk-Taking Behavior
Jahrgang 172 (2016) / Heft 4, S. 645-664 (20)
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).