Research

Exploiting the U.S. shale oil revolution as a substantial, unexpected shock to investment opportunities for oil and gas (O&G) firms, we explore whether firms facing an uncertain investment decision adopt a voluntary disclosure policy that facilitates informational feedback from the equity market. Difference-in-differences tests show O&G firms increase (reduce) their issuance of capital expenditure (earnings) forecasts during the shale oil revolution relative to similar, capital-intensive firms. Consistent with managers using market reactions to proposed investment plans to gather information from informed traders, we find investment expenditures become more sensitive to market reactions to capex forecasts during the shale oil revolution period. Consistent with managerial learning improving investment decisions, we find a more pronounced positive relation between future operating performance and investment adjustments made in response to market reactions for O&G firms during the shale oil boom. Our evidence speaks to how managers tailor disclosures to promote informational feedback from prices.

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Despite the growing use of subjective performance incentives used in executive bonuses, empirical evidence on their effectiveness remains inconclusive. This study explores three aspects of subjective metrics in bonus plan design: their prevalence, the goals they target, and their impact on managerial behavior and firm outcomes. First, I document 53.8 percent of CEO bonus plans include at least one subjective performance measure, and among these plans, an average of 38.9 percent of total bonus weight is allocated to these measures. Using machine learning, I show subjective metrics target incentives related to employees, firm culture, and executive performance. Second, using the Tax Cuts and Jobs Act as a quasi-exogenous shock to contract design, I find firms increase the number and weight of subjective metrics by 22.9 percent and 10.4 percent, respectively. Finally, I find the increasing prevalence of subjective performance measures positively influences CEO effort, corporate culture, and innovation.

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We investigate whether foreign tax holiday participation among US multinational companies is associated with offshoring US jobs and other domestic investment activities. We find that foreign tax holiday participation is associated with (1) an increase in offshoring US jobs and (2) a decrease in domestic investment, as proxied by changes in the number of employees, capital expenditures, and R&D activity. Furthermore, we find evidence suggesting that the association between targeted, temporary tax incentives provided by foreign tax holidays and firms' domestic activities is stronger among firms with a smaller foreign presence and is distinct from the impact of foreign statutory tax rate changes. Overall, the results of this study increase our understanding of the firm-level consequences of foreign tax holiday participation, the influence of various tax incentive structures on the allocation of firm resources, and the potential consequences of international tax competition.

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We examine whether the Internal Revenue Service (IRS) uses public information to obtain qualitative signals regarding the quality of firms’ financial information or management integrity. Using the procurement of public information as a proxy for IRS attention, we test whether public signals of poor information quality (restatements) lead to an increase in IRS attention. To begin, we document that the IRS is both more likely and quicker to acquire public filings announcing a restatement than any other filing of the firm. Furthermore, we examine instances in which the IRS is more likely to learn of a restatement and find an increase in attention around both press releases and media coverage of the restatement. Next we examine the implications of increased IRS attention. Employing path analysis, we find that IRS attention is associated with both higher levels of future tax settlements and a greater likelihood of the mention of a tax audit. Overall our results are consistent with the IRS responding to signals of poor information quality or management integrity as if financial misreporting and tax reporting are related.

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Amid growing globalization, many countries have offered tax incentives to attract corporate investment. Prior research studies the role such incentives play in firms’ location and investment choices. However, we have limited evidence on the role that uncertainty about the intensity of future tax enforcement plays in those decisions. In 2013, the European Commission (“E.C.”) abruptly began investigating tax ruling practices of several countries in response to allegations that certain firms received preferential tax treatment (“state aid cases”). We use this setting to study the economic consequences of increased uncertainty about future tax enforcement. We find evidence consistent with significant reductions in U.S. multinational firms’ subsidiary investments within, firm input purchases from, and aggregate investment of U.S. firms flowing to targeted state aid countries. Our results highlight significant real effects of increased uncertainty and complexity surrounding shifts in supragovernmental tax enforcement.

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In this invited discussion, we review research on multinational income shifting and evaluate Klassen and Valle Ruiz’s evidence on how changes in transfer pricing rules affect affiliate managers’ reporting incentives. We highlight firms’ rapid responses to tax enforcement, examine tensions between tax planning and managerial performance targets, and consider alternative explanations for the reported earnings management. We also identify opportunities for future research on tax enforcement, internal coordination, and financial reporting.

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This project examines the relationship between congressional stock trading and corporate investment decisions, with a focus on whether politically informed trades convey information that managers can use when evaluating investment opportunities.

This paper studies how economic nexus laws and the taxation of online purchases affect consumer spending at physical retailers and shopping across state borders. It combines household purchase data with geographic shopping patterns to examine how consumers respond to differences in sales tax treatment.

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This project develops measures of corporate multinationality using information in SEC 10-K filings. Large-scale text processing and language models help identify geographic operations and classify business activities, allowing research to distinguish among different types of multinational operations.

This paper examines whether a company’s decision to litigate an IRS dispute signals confidence in the quality of its accounting. It studies the relationship between tax litigation, financial reporting quality, and fraud risk, including how the information conveyed by litigation varies with the scrutiny involved in different court proceedings.

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This paper studies specialized tax expertise in analyst research and its relevance to capital markets. It examines what drives tax discussion in analyst reports, how that discussion relates to the accuracy of tax and earnings forecasts, and how investors respond to forecast revisions containing tax analysis.

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