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Abstract
We examine the role of taxable income in CEO compensation within the Chinese setting, where government influence is strong. We survey Chinese listed firms and find that 43% of the participating companies indicate their use of tax return information in executive compensation and turnover decisions. Large-sample tests show that CEO compensation rises as taxable income increases, and the effect of taxable income is more pronounced under greater government influence. Furthermore, the likelihood of CEO turnover decreases as taxable income increases, and this effect intensifies as government influence strengthens. Overall, our results suggest that strong government influence shapes the role of taxable income in CEO compensation and turnover decisions.
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