The Accounting Review Vol. 94 No. 1 2019
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 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/.
- DOI
- 10.2308/accr-52193
- Volume
- 94
- Issue
- 1
- Pages
- 1-24
- Language
- en
- Sources
- openalex bibtex:phds-export.bib crossref