Sharing Risk with the Government: How Taxes Affect Corporate Risk Taking

• 成果类型: Article
• 署名作者: Ljungqvist, Alexander; Zhang, Liandong; Zuo, Luo
• 署名单位: New York University; National Bureau of Economic Research; City University of Hong Kong; Cornell University
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12157
• 发表日期: 2017
• 页码: 669-707
• 关键词: state borders; contiguous counties; financial policies; INVESTMENT; incentives; FIRMS; taxation; STOCK; debt; COMPENSATION

摘要

Using 113 staggered changes in corporate income tax rates across U.S. states, we provide evidence on how taxes affect corporate risk-taking decisions. Higher taxes reduce expected profits more for risky projects than for safe ones, as the government shares in a firm's upside but not in its downside. Consistent with this prediction, we find that risk taking is sensitive to taxes, albeit asymmetrically: the average firm reduces risk in response to a tax increase (primarily by changing its operating cycle and reducing R&D risk) but does not respond to a tax cut. We trace the asymmetry back to constraints on risk taking imposed by creditors. Finally, tax loss-offset rules moderate firms' sensitivity to taxes by allowing firms to partly share downside risk with the government.