My research interests focus on the real effects of taxes and corporate disclosures. My work is primarily empirical archival in nature.
1) "Locked-in: The Effect of CEOs' Capital Gains Taxes on Corporate Risk Taking" (Job Market Paper)
Abstract: I study the effects of CEOs’ unrealized capital gains tax liabilities (tax burdens) on corporate risk-taking. Recent work suggests that high tax burdens discourage CEOs from selling stock. I hypothesize that this causes the executives to become overexposed to firm-specific risk thereby reducing their willingness to make risky corporate decisions. Using a series of tests, I find that corporate risk-taking decreases with CEOs’ personal tax burdens. Further, risk-taking increases in proportion to CEOs’ tax burdens subsequent to federal and state tax cuts. When I investigate the mechanism behind this relation, I find that tax cuts trigger stock sales by the executives, especially CEOs with high tax burdens, suggesting that tax cuts alleviate the friction imposed by the anticipated tax obligation. Overall, my findings indicate that the personal tax burdens of CEOs have a material impact on firm behavior by reducing executives’ preferences for risk.
2) "When Does Peer Information Matter?" (with Nemit Shroff and Rodrigo Verdi)
Abstract: This paper examines whether information about peer firms affects the cost of capital for related firms in an industry and when such effects are more significant. We focus on a sample of private firms that raise public debt for the first time because such firms are opaque prior to their bond issuance but become significantly more transparent following their issuance. We predict and find that in the initial year of the bond issuance, when firm-specific information is scarce, peer-firm information is negatively associated with the issuing firm’s cost of capital. This effect shrinks over time as the amount of firm-specific information increases and substitutes for peer-firm information. In economic terms, peer-firm information lowers bond yields by 16.6% for first-time bond issuers in the year of issuance, but by only 4.4% in the third year after issuance. We corroborate our inference by examining the effect of peer-firm information on the cost of equity capital during equity offerings. This paper provides novel evidence that the positive externalities arising from information about peer firms vary over time.
3) "Does Tax Avoidance Mitigate Financial Constraints?"
Abstract: I examine whether tax avoidance serves as a source of internal financing for firms, allowing constrained firms to increase investment. Among those lacking a public debt rating, I find that tax avoiding firms are more likely to undertake acquisitions than non-tax avoiding firms. I also find that tax avoiders experience a less favorable market reaction to acquisition announcements relative to non-tax avoiding firms. Tax avoidance is associated with increased investment in the subsequent period, particularly among those firms without a public debt rating. Finally, tax avoiders with a volatile tax rate are less able to increase investment than those firms able to sustain a low tax rate. Overall, the results suggest that tax avoidance as a source of internal financing can be important for firms that lack access to more traditional sources of financing.
4) "The Feedback Effect of Information Transfer on Corporate Disclosures" (with John Core, Jinhwan Kim, and Rodrigo Verdi)