- Does Corporate Governance Induce Earnings Management?
Evidence from Bonus Depreciation and the Fiscal Cliff (Job Market Paper)
[ | Paper PDF | Presentation PDF ]
Commonly-used corporate governance mechanisms can improve some aspects of managerial performance, but also encourage managers to focus on current financial statement earnings at the possible expense of long-run profits. This unintended effect is revealed by reactions to "bonus depreciation," a U.S. tax policy that encourages investment by reducing the present value of tax liabilities without directly improving reported earnings. During 2000-2010, investment by better-governed firms responded less to bonus depreciation than did firms with less effective governance; for example, one percent greater managerial share ownership was associated with 22 percent less investment response to bonus depreciation. Similarly, share prices of poorly governed firms reacted most strongly to the surprise 2013 extension of bonus depreciation. Taken together, this evidence suggests that high-powered managerial incentives encourage earnings management that is value-reducing in the context of bonus depreciation.
- Dividend Taxation and Merger Behavior:
A New View Explanation For The Post-Merger Performance Puzzle (with Nathan Seegert)
Award for Best Paper - Oxford Centre for Business Taxation Annual Doctoral Meeting 2013
[ | Paper PDF ]
This paper considers the impact of dividend taxation on the merger and acquisition behavior of publicly traded firms. Mergers and acquisitions are a large part of the United States' economy. Between 2000 and 2012, the dollar value of merger and acquisition activity in the US was $12.78 trillion. Mergers are also an important aspect of the economy because, done well, they can capitalize on positive synergies and economies of scale, thereby increasing efficiency and creating value for shareholders. However, executed poorly, mergers can dampen innovation, decrease efficiency, and destroy shareholder value. Because of the scale and significance of this topic, large literatures in finance and economics have developed that discuss possible mechanisms which distort merger and acquisition behavior.
We consider a new mechanism of distortion: dividend taxation. We develop a "new view" of corporate taxation model in which dividend taxation causes inefficient mergers. We find strong empirical support for the model, demonstrating long-run returns are 8 to 10 percent higher for dividend paying firms following the 2003 US dividend tax reform.
- Estimating Investment Response to User Cost of Capital using
New Micro-Evidence From the Domestic Production Activities Deduction
[ | Paper PDF ]
This paper examines the investment impacts of the Domestic Production Activities Deduction (DPAD), a tax incentive that lowers the corporate statutory tax rate on domestic manufacturing activities by approximately 3%. In order to analyze the DPAD, I collect data on the deduction from firms' tax footnotes contained in their 10-K filings. I identify 454 firms for which the deduction was large enough to produce a "material" difference between their statutory and effective corporate tax rates. The average firm in the sample reports a $3.18 million tax deduction.
To analyze the investment impacts of the DPAD, I combine the firm-level data on the deduction with industry level variation in investment depreciation rates to construct a "user cost of capital" variable which summarizes the after-tax cost of investment. I estimate the investment response these user costs for the 454 DPAD firms. Because user costs are constructed at the firm level, this elasticity, that is central to the public finance literature, is identified for the first time using firm level, not industry level, variation. Estimates are slightly larger than prior industry-level estimates and suggest that a 1% decrease in the user cost of capital results in a 1.37% increase in investment as a fraction of installed capital. This estimate suggests that for the average firm in the sample, the DPAD increases investment as a fraction of installed capital by approximately 1%.
- The Effects of Taxation and Managerial Entrenchment on Corporate Charitable Giving (with Nicolas J. Duquette)
The US tax code allows C-corporations to deduct charitable contributions from taxable income; in 2012, US corporate giving totaled $18 billion. This significant sum is surprising behavior for profit-maximizing firms. We present a model of corporate giving that considers two explanations: first, that charitable contributions are a form of shadow executive compensation, and therefore are concentrated among firms with weak corporate governance; or charitable contributions may also be a form of tax-preferred distribution to shareholders, who would otherwise pay capital gains taxes prior to personal giving. We construct a novel panel dataset of public corporations' SEC filings, corporate charitable foundations, and measures of corporate governance to present a descriptive analysis of corporate charitable giving using micro data, and to test the effects of taxation and governance on corporate charity.
- Primary Instructor:
Principles of Economics I Microeconomics (ECON 101) Summer 2012
Principles of Economics II Macroeconomics (ECON 102) Spring 2011
- Graduate Student Instructor Mentor:
Academic Year 2010-2011
- Graduate Student Instructor:
Principles of Economics I Microeconomics (ECON 101) Fall 2009 and Winter 2010
Principles of Economics II Macroeconomics (ECON 102) 5 Semesters 2010 - 2013
Fellowships and Awards
Oxford Centre for Business Taxation Annual Doctoral Meeting - Best Paper 2013
- Michigan Economics Society - Award for Outstanding Grad Student Instructor Fall 2010
- Letters of Commendation for Excellent Teaching Fall 2009, Winter 2010
- Beta of Iowa - Phi Beta Kappa Award 2007
- Department of Economics - Summer Research Apprenticeship 2008 & 2009
Conferences and Invited Presentations
- U.S. Treasury
Invited Speaker, Corporate Governance and Earnings Management, October 2013 (Upcoming)
- National Tax Association
Presenter, Corporate Governance and Earnings Management, Tampa, FL, November 2013 (Upcoming)
Participant, Providence, RI, November 2012
Participant, New Orleans, LA, November 2011
- Midwest Economics Association
Presenter, Taxation and Mergers Evanston, IL, March 2011
- Research Assistant for Prof. James R. Hines. Fall 2010
- Summer Research Apprenticeship with Prof. James R. Hines 2010
- Summer Research Apprenticeship with Prof. David Lam 2009