Research portfolio

This study examines corporate risk-taking decisions in response 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 tax policy reduces exposure to economic depreciation shocks, and firms respond by investing in assets with uncertain replacement costs. I also predict and find that the response is stronger for small and financially constrained firms, low productivity firms, and firms without tax loss carryforwards. The results imply that phasing out bonus depreciation might expose firms to economic depreciation uncertainty shocks, and potentially come at the expense of reduced risk-taking.

We examine the relation between corporate tax planning and firm-level productivity. Using a sample of U.S. public firms from 1993 to 2017, we find that lower effective tax rates are associated with higher productivity. Tax planning mutes the tax wedge on productive inputs and facilitates capital and labor investments. We provide evidence of two channels underlying the observed link. First, tax planning enables firms to scale up and benefit from economies of scale. Second, tax planning raises the marginal return on innovation and firms respond with increased knowledge capital intensity. Our findings are insensitive to a litany of robustness tests. We exploit the introduction of Check-the-Box regulation and the implementation of an Irish tax reform as exogenous sources of tax planning variation to facilitate Difference-in-Differences analyses. Our findings enhance the understanding on the economic implications of tax planning, and could provide insights for informed tax policy debates.

CEOs with short-term equity incentives behave myopically out of concern for the stock price. We argue that corporate tax avoidance, given its immediate positive impact on stock prices, is one potential target for managerial short-termism. We show that equity vesting, a measure of short-term equity incentives, is associated with declines in cash effective tax rates. We also identify CEO equity sales as the underlying economic mechanism. Additional analyses indicate that equity vesting induces suboptimal tax avoidance, which is positively (negatively) associated with short-term (long-term) shareholder wealth. We mitigate endogeneity concerns by using equity vesting schedules determined several years prior, and options acceleration before the adoption of FAS 123R as events plausibly exogenous to the current corporate tax avoidance environment.