We exploit changes in a country's integration of corporate and shareholder taxes to identify the effect of investor-level taxes on costly corporate tax avoidance. Specifically, we rely on European countries eliminating imputation systems in different years in response to supranational judicial rulings. These eliminations, which are exogenous to the firm, remove managers' disincentive to engage in tax avoidance if they consider investor-level taxes. Using a difference-in-differences model with fixed effects, we find that the average firm affected by an elimination reduces its cash effective tax rate by 5.5 percent. Placebo tests support that this effect exists only for countries and years for which eliminations occur. Consistent with our cross-sectional predictions, we find that results are stronger for firms with lower growth opportunities, higher dividend payout, lower foreign income, and higher closely held ownership. Further analysis provides evidence consistent with shifting income to foreign countries as one method of tax avoidance.

This study sheds light on the extent to which the use of operating leases depends on reporting incentives, such as understating liabilities, and non-reporting incentives that partly arise from the overlap between accounting, bankruptcy, and tax laws, such as increasing financing capacity and flexibility. We provide evidence that expanding financing capacity, accommodating volatile operations, and maximizing the present value of tax deductions are all important drivers of leasing decisions. Our findings suggest that capital markets and contracting-based reporting incentives have little influence on operating lease use. In particular, we find weak evidence that firms increase operating leases in advance of issuing equity, and no evidence that firms use operating leases to window-dress in advance of issuing debt, to avoid debt covenant violations, for compensation purposes, or to paint a better picture on an ongoing basis. These findings are consistent with reporting incentives playing a second-order role in leasing decisions.

Prior research finds that agents who are compensated on an imperfect measure of performance tend to distort their operational decisions and believe that the measure is more reflective of reality than it actually is (i.e., they surrogate). I find that agents distort decisions less and surrogate less when they can provide unverifiable narrative explanations for their actions. In my experiment, experienced chess players place bets on and write explanations about in-progress chess games. I manipulate whether participants give their explanations to their boss (who allocates a subjective bonus) when working as an agent. Participants who give explanations are more likely to make bets that reflect all dimensions of a chess position, rather than making bets that favor only the objective measure. They are also less likely to surrogate and are more likely to write about unmeasurable aspects of the games when subsequently making bets on their own behalf