We use staggered enactments of state stakeholder constituency laws as a natural experiment to examine the effect of such laws on corporate pension risk shifting. Our analysis encompasses three components of pension risk shifting: funding risk, investment risk, and benefit risk. We observe a reduction in all three elements of pension risk shifting following the enactment of stakeholder orientation laws that promote greater consideration of stakeholder interests. We also find that the post-enactment reduction in pension risk-shifting is greater for firms with fewer investment opportunities. Overall, our results provide insight into how stakeholder constituency can mitigate an important form of risk-shifting.

Building on recent theory, we find strong and robust evidence that external labor market incentives motivate CEOs to adopt more aggressive tax policies in order to improve firm performance and their own labor market value. In addition, we find that the tax aggressiveness-labor market incentives relation varies in the cross-section consistently with theory. We find that the relation is attenuated in industries for which the CEO has fewer outside employment options, and we find it to be amplified in industries for which competition for CEO talent is likely greatest, and also among CEOs estimated to have greater ability. Overall, our results suggest that the market for CEOs – an incentive device external to the firm – has a meaningful impact on corporate tax policy.

We identify executives who have experienced significant accounting-related adverse events during their careers as a powerful setting to examine the extent to which prior professional experience can influence subsequent financial reporting policies. We find that firms led by senior financial executives who have experienced accounting-related adverse events during their careers exhibit greater unconditional accounting conservatism, a lower likelihood of experiencing future accounting-related adverse events, and less positive abnormal discretionary accruals. This effect tends to be stronger when the experience is more frequent, recent, severe, or proximate. Overall, our results reveal a meaningful relationship between managers’ professional experience and accounting policies. Data Availability: All data used in this study are obtained from publicly available sources.

Companies are adopting executive compensation recoupment (“clawback”) policies to discourage aggressive financial reporting choices. Recent research suggests clawback policies encourage other means of meeting earnings expectations. We suggest that reducing income tax expense is a means of meeting earnings expectations. We find that effective tax rates are lower after clawback adoption due to increased investments in tax planning. We identify three tax planning activities that clawback companies invest in to lower effective tax rates: purchases of auditor-provided tax services, increased connections to other low-tax companies, and use of tax havens. We provide evidence that effective tax rate decreases do not result from use of opportunistic income tax accruals, and that decreases are stronger among companies that adopt robust clawback policies. Additional tests indicate lower tax outcome volatility and longer, more readable tax footnotes following clawback adoption. Our results suggest a positive spillover effect of clawback adoption on corporate tax policy.

We use changes in mandatory pension funding to investigate the relation between internal financing constraints and incremental investment. Pension funding relief enacted in 2012 significantly reduced mandatory employer contributions to defined benefit pension plans. Prior to learning of the pension relief, firms disclosed their expected pension contributions under FAS 132R, which allows us to infer changes in investment plans in response to this unanticipated pension relief. Although our setting is pensions, our inferences contribute to the broader literature on how access to finance impacts the firm. We predict and find that pension relief resulted in increased nonpension investment in the year after enactment for financially constrained firms, and is stronger for constrained firms with greater pension underfunding. Our results are consistent with pension relief providing an important means of funding investment for financially constrained firms. Our identification strategy and results provide an important innovation to the literature examining the effect of financing constraints on investment.

We examine the effect of technology spillovers on the duration of executive compensation contracts. We find that in the presence of greater technology spillovers, firms tend to grant longer duration compensation contracts to their executives. This finding is consistent with theoretical predictions by Manso (2011) who argues that firms should choose longer-term contracts to encourage managerial incentives for exploration. We enhance our identification by using exogenous variation in state-level R&D tax credits of peer firms to identify the effect of technology spillovers on the duration of focal firm compensation structures. We also find this effect to be stronger among younger firms and firms with more growth opportunities. Overall, our findings suggest that technology spillover has a meaningful influence on compensation contracting.

We examine the effect of ex ante litigation risk on the price and non-price terms of loan contracts. Since expected litigation is endogenous, we focus on federal circuit court judge ideology to generate plausibly exogenous variation in the outcome of a class action lawsuit. We find that loans issued by firms headquartered in circuits with a higher likelihood of drawing a liberal panel of judges in a class action lawsuit have higher loan spreads, shorter maturity, and a larger number of and more restrictive covenants. To strengthen our claim that judge ideology affects loan contracting through its effect on the outcome of a class action lawsuit, we show that the influence of judge ideology on price and nonprice terms of loans is strongly influenced by factors that influence the probability of a class action lawsuit. Overall, our results bolster the case that litigation risk has a causal effect on debt contracting.

We investigate whether geographic proximity between corporate headquarters and IRS regional offices affects corporate tax avoidance and the likelihood and productivity of IRS examinations. Using geographic distance to represent information asymmetry, we find that corporations avoid more tax when located closer to the IRS unless they are close to an IRS industry specialist. This finding is consistent with taxpayers believing proximity provides them with an information advantage over the IRS. From the perspective of the IRS, we find that the Service is more likely to audit nearby companies and to assess more tax per hour from nearby taxpayers, except during constrained budget years. IRS audit likelihood and productivity are unaffected by the presence of nearby industry specialists, consistent with industry specialist proximity already constraining avoidance. Our tax compliance setting provides dual-party evidence on the proximity-information asymmetry hypothesis.