The Effect of Tax Policies on Corporate Risk-Taking: Evidence From Bonus Depreciation

(working paper; sole-authored Job Market Paper)

This study examines corporate risk-taking responses to corporate taxable income shifts in the United States. I exploit bonus depreciation, a tax policy implemented in 2001 that induced industry-specific variation in accelerated depreciation schedules, to implement a Difference-in-Differences framework. The findings show that the average U.S. public firm increases risk by 23% – 25% in response to bonus depreciation. Corporate taxation creates a disconnect between tax and economic depreciation, but bonus depreciation bridges the gap. Hence, the policy compensates for exposure to economic depreciation and firms respond by increasing investment in assets with volatile replacement values. I also predict and find that the response is stronger for financially constrained firms, low productivity firms, and firms with few alternative tax shields. The results imply that phasing out bonus depreciation might expose firms to economic depreciation uncertainty shocks, and potentially come at the expense of less risk-taking and reduced economic growth.

Does Corporate Tax Planning Affect Firm Productivity?

(working paper; with Edward Lee, and Konstantinos Stathopoulos)

Conferences (chronologically): AAA 2022, EAA 2022, ATA/JATA 2022, XVI IARS 2021, ICGS 2021, BAM 2021

We examine the relation between corporate tax planning and firm-level productivity. Using a sample of U.S.-listed firms from 1994 to 2017, we show that, ceteris paribus, lower effective tax rates lead to higher production efficiency. Consistent with the “funding gap” of innovative investments due to debt market frictions, the results indicate that productivity is more sensitive to tax planning for knowledge capital intensive firms. The findings also suggest that tax planning enables firms to increase in size, benefiting from economies of scale. To mitigate endogeneity concerns, we employ a battery of robustness tests, including a quasi-natural research design that exploits a plausibly exogenous increase in the tax planning opportunities of certain firms. Our findings enhance the understanding on the economic implications of corporate tax planning, and provide insights for informed tax policy debates.

Managerial Short-Termism and Corporate Tax Avoidance

(working paper; with Edward Lee, and Konstantinos Stathopoulos)

Conferences (chronologically): ICGS 2022 (scheduled/accepted), BAM 2022, AAA 2022, ISF 2022, ICGS 2021

CEOs with substantial short-term equity incentives behave myopically out of concerns for the stock price. We argue that corporate tax avoidance, given its positive impact on stock prices, is one potential target for managerial myopia. We show that, ceteris paribus, CEO short-term equity incentives are associated with declines in cash effective tax rates. We also identify CEO equity sales as the underlying economic mechanism. Further analyses indicate that tax avoidance is positively (negatively) associated with short-term (long-term) shareholder wealth in firms with myopic CEOs. We address endogeneity concerns with the use of equity vesting, and options acceleration before the adoption of FAS 123R as events plausibly exogenous to the current corporate tax planning environment.

The Effect of Innovation Box Regimes on Risk-Taking Attitudes

(work in progress; with Sadok El Ghoul, Omrane Guedhami, and Konstantinos Stathopoulos)

Predicting Accounting Fraud: Evidence From the Options Market

(work in progress; with Alexandros Kostakis and Konstantinos Stathopoulos)