Tax Rates and Corporate Decision-making

• 成果类型: Article; Proceedings Paper
• 署名作者: Graham, John R.; Hanlon, Michelle; Shevlin, Terry; Shroff, Nemit
• 署名单位: Duke University; Massachusetts Institute of Technology (MIT); University of California System; University of California Irvine
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhx037
• 发表日期: 2017
• 页码: 3128
• 关键词: investment; debt; benefits; finance; uncertainty; COMPETITION; incentives; SALIENCE; JUDGMENT; taxation

摘要

We survey companies and find that many use incorrect tax rate inputs into important corporate decisions. Specifically, many companies use an average tax rate (the GAAP effective tax rate, ETR) to evaluate incremental decisions, rather than using the theoretically correct marginal tax rate. We find evidence consistent with behavioral biases (heuristics, salience) and managers' educational backgrounds affecting these choices. We estimate the economic consequences of using the theoretically incorrect tax rate and find that using the ETR for capital structure decisions leads to suboptimal leverage choices and using the ETR in investment decisions makes firms less responsive to investment opportunities. (JEL H25, G31, M00, G02 and M41)