Program
Subjects
Works
Book Types
Back to issue
Cover of: Why Taxing Executives' Bonuses Can Foster Risk-Taking Behavior
Helmut Dietl, Martin Grossmann, Markus Lang

Why Taxing Executives' Bonuses Can Foster Risk-Taking Behavior

Section: Articles
Volume 172 (2016) / Issue 4, pp. 645-664 (20)
Published 09.07.2018
DOI 10.1628/093245616X14689190842778
  • article PDF
  • available
  • 10.1628/093245616X14689190842778
Due to a system change, access problems and other issues may occur. We are working with urgency on a solution. We apologise for any inconvenience.
Summary
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).