Publication Type
Journal Article
Version
submittedVersion
Publication Date
1-2019
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.
Keywords
Corporate risk-taking, Risky investment, Risk-taking incentives, Personal income taxes, Federal income taxes, State income taxes, Agency conflicts
Discipline
Accounting | Corporate Finance | Taxation
Research Areas
Corporate Governance, Auditing and Risk Management
Publication
Accounting Review
Volume
94
Issue
1
First Page
1
Last Page
24
ISSN
0001-4826
Identifier
10.2308/accr-52193
Publisher
American Accounting Association
Citation
ARMSTRONG, Chris; GLAESER, Stephen; HUANG, Sterling; and TAYLOR, Daniel.
The economics of managerial taxes and corporate risk-taking. (2019). Accounting Review. 94, (1), 1-24.
Available at: https://ink.library.smu.edu.sg/soa_research/1793
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2308/accr-52193
Included in
Accounting Commons, Corporate Finance Commons, Taxation Commons