Research portfolio

This study investigates the impact of accelerated tax depreciation on corporate risk-taking decisions in the United States. Economic theory suggests that risky investments face high effective tax burdens, but bonus depreciation — a tax policy introduced in 2001 that induced industry-specific variation in accelerated depreciation schedules — could reduce such distortions. Using a generalized Difference-in-Differences framework, I find that the average U.S. public firm increases risk by 17.93% in response to bonus depreciation. I also provide evidence of a channel underlying the observed link. Specifically, firms respond to the policy by investing in capital stock with volatile future prices. Moreover, small and financially constrained firms, low productivity firms, and firms without tax loss carryforwards respond more strongly to the policy. The results imply that phasing out bonus depreciation might expose firms to inflation and time value of money factors, potentially resulting in 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 provides an avenue for managerial short-termism due to its immediate positive impact on stock prices. We show that vesting equity delta — 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 vesting equity induces suboptimal tax avoidance, which is positively (negatively) associated with short-term (long-term) shareholder wealth. We mitigate endogeneity concerns by using 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.