Corporate Tax Reform and CEO Compensation: Evidence from Korea, Seo, Jeong-Kwon · Choi, Moon-Seok

We examine whether corporate tax shocks affect CEO compensation. Exploiting the 2018 Korean corporate tax reform, which raised the statutory tax rate from 22% to 25% for firms with taxable income above KRW 300 billion, we employ a difference-in-differences design using Korean listed firms from 2011 to 2022. We find that firms exposed to the tax increase raise CEO compensation by approximately 19.7% after the reform. Rather than supporting the conventional prediction that higher corporate taxes reduce executive pay, this evidence suggests that firms adjust CEO compensation as a compensating differential for a more complex and more exposed after-tax performance environment. We also find that external monitoring moderates this effect. The increase in CEO compensation is significantly weaker for firms with greater Google search attention and higher analyst coverage, indicating that external monitoring intensity constrains discretionary compensation adjustments. Our study shows that corporate tax reforms can have unintended effects on managerial compensation and underscores the governance role of external monitoring in shaping firms’ responses to tax-policy changes.