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The Economics of Managerial Taxes and Corporate Risk-Taking

ABSTRACT We examine the relation between managers' personal income tax rates and their corporate investment decisions. Using plausibly exogenous variation in federal and state tax rates, we find a positive relation between managers' personal tax rates and their corporate risk-taking. Moreover—and co... Full description

Journal Title: The Accounting review 2019-01-01, Vol.94 (1), p.1-24
Main Author: Armstrong, Christopher S
Other Authors: Glaeser, Stephen , Huang, Sterling , Taylor, Daniel J
Format: Electronic Article Electronic Article
Language: English
Subjects:
Quelle: Alma/SFX Local Collection
Publisher: Sarasota: American Accounting Association
ID: ISSN: 0001-4826
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title: The Economics of Managerial Taxes and Corporate Risk-Taking
format: Article
creator:
  • Armstrong, Christopher S
  • Glaeser, Stephen
  • Huang, Sterling
  • Taylor, Daniel J
subjects:
  • Chief executives
  • Corporate taxes
  • Financial research
  • Income taxes
  • Investments
  • Management
  • Managers
  • Methods
  • Middle income
  • Personal income
  • Risk taking
  • Risk-taking (Psychology)
  • Senior managers
  • Tax rates
  • Taxation
ispartof: The Accounting review, 2019-01-01, Vol.94 (1), p.1-24
description: ABSTRACT We examine the relation between managers' personal income tax rates and their corporate investment decisions. Using plausibly exogenous variation in federal and state tax rates, we find a positive relation between managers' personal tax rates and their corporate risk-taking. Moreover—and consistent with our theoretical predictions—we find that this relation is stronger among firms with investment opportunities that have a relatively high rate of return per unit of risk, and stronger among CEOs who have a relatively low marginal disutility of risk. Importantly, our results are unique to senior managers' tax rates––we do not find similar relations for middle-income tax rates. Collectively, our findings provide evidence that managers' personal income taxes influence their corporate risk-taking decisions. JEL Classifications: G30; G32; G38; H24; H32. Data Availability: Data are available from the sources cited in the text. Data on manager tax rates used in this paper are available at: http://acct.wharton.upenn.edu/∼dtayl/.
language: eng
source: Alma/SFX Local Collection
identifier: ISSN: 0001-4826
fulltext: fulltext
issn:
  • 0001-4826
  • 1558-7967
url: Link


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descriptionABSTRACT We examine the relation between managers' personal income tax rates and their corporate investment decisions. Using plausibly exogenous variation in federal and state tax rates, we find a positive relation between managers' personal tax rates and their corporate risk-taking. Moreover—and consistent with our theoretical predictions—we find that this relation is stronger among firms with investment opportunities that have a relatively high rate of return per unit of risk, and stronger among CEOs who have a relatively low marginal disutility of risk. Importantly, our results are unique to senior managers' tax rates––we do not find similar relations for middle-income tax rates. Collectively, our findings provide evidence that managers' personal income taxes influence their corporate risk-taking decisions. JEL Classifications: G30; G32; G38; H24; H32. Data Availability: Data are available from the sources cited in the text. Data on manager tax rates used in this paper are available at: http://acct.wharton.upenn.edu/∼dtayl/.
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subjectChief executives ; Corporate taxes ; Financial research ; Income taxes ; Investments ; Management ; Managers ; Methods ; Middle income ; Personal income ; Risk taking ; Risk-taking (Psychology) ; Senior managers ; Tax rates ; Taxation
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abstractABSTRACT We examine the relation between managers' personal income tax rates and their corporate investment decisions. Using plausibly exogenous variation in federal and state tax rates, we find a positive relation between managers' personal tax rates and their corporate risk-taking. Moreover—and consistent with our theoretical predictions—we find that this relation is stronger among firms with investment opportunities that have a relatively high rate of return per unit of risk, and stronger among CEOs who have a relatively low marginal disutility of risk. Importantly, our results are unique to senior managers' tax rates––we do not find similar relations for middle-income tax rates. Collectively, our findings provide evidence that managers' personal income taxes influence their corporate risk-taking decisions. JEL Classifications: G30; G32; G38; H24; H32. Data Availability: Data are available from the sources cited in the text. Data on manager tax rates used in this paper are available at: http://acct.wharton.upenn.edu/∼dtayl/.
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