Locked-In: The Effect of CEOs' Capital Gains Taxes on Corporate Risk-Taking

• 成果类型: Article
• 署名作者: Yost, Benjamin P.
• 署名单位: Boston College
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-51962
• 发表日期: 2018
• 页码: 325-358
• 关键词: executive-compensation; HEDGING POLICIES; STOCK-OPTIONS; asset prices; taxation; debt; volatility; INVESTMENT; reduction; leverage

摘要

I study the effects of CEOs' unrealized capital gains tax liabilities (tax burdens) on corporate risk-taking. Recent work suggests that high tax burdens discourage CEOs from selling stock. I hypothesize that this causes the executives to become overexposed to firm-specific risk, thereby reducing their willingness to make risky corporate decisions. In a series of tests, I find that corporate risk-taking decreases as CEOs' personal tax burdens increase. Further, firms with CEOs who are more locked-in to their stock positions (i.e., CEOs with higher tax burdens) experience larger increases in risk-taking following federal and state tax cuts. When I investigate the mechanism behind this relation, I find that tax cuts trigger stock sales by the locked-in executives, allowing for improved diversification. Overall, my findings indicate that the personal tax burdens of CEOs affect the firm by reducing executives' preferences for risk at the corporate level.