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The effect of addback statutes on CEO compensation

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  • Karel Hrazdil
  • Gerald Lobo
  • Ray Zhang
  • Weiji Zhang

Abstract

Exploiting the adoption of addback statutes, which occurred at different times, as exogenous shocks to corporate taxable income, we examine the effect of tax policy changes on the compensation of chief executive officers (CEOs). We provide evidence that CEOs of firms headquartered in states affected by addback statutes experienced a decrease in total compensation; the decrease is stronger for firms with higher intangibles and asset replacement costs relative to book values, and weaker for firms whose CEOs are more powerful. Our results have important implications for policy‐makers who strive to combat pay inequality and managerial myopia through tax laws.

Suggested Citation

  • Karel Hrazdil & Gerald Lobo & Ray Zhang & Weiji Zhang, 2025. "The effect of addback statutes on CEO compensation," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 65(1), pages 793-818, March.
    • Handle: RePEc:bla:acctfi:v:65:y:2025:i:1:p:793-818
    DOI: 10.1111/acfi.13349
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