Taxation and Corporate Risk-Taking

By Dominika Langenmayr, Rebecca Lester. Social Science Research Network, 2017

167 citations recorded by the source corpus.

We study whether the corporate tax system provides incentives for risky firm investment. We first model the effects of corporate tax rates and tax loss offset rules on firm risk-taking. Testing the theoretical predictions, we find that firm risk-taking is positively related to the length of tax loss periods. This result occurs because the loss rules shift a portion of investment risk to the government, inducing firms to increase their overall level of risk-taking. Moreover, the corporate tax rate has a positive effect on risk-taking for firms that can expect to use their tax losses, and a negative effect for those that cannot. Thus, the effect of taxes on risky investment decisions varies among firms, and its sign hinges on firm-specific expectations of future tax loss recovery.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/dec80bc5dca53ca7bb6bfa0c53bb591326307fe0

Citations in the corpus

• Sharing Risk with the Government: How Taxes Affect Corporate Risk Taking (2017, unknown): “Most related to our study is a working paper by Langenmayr and Lester (2015), which also”