Taxation and Corporate Risk-Taking

59 Pages Posted: 8 Aug 2017

See all articles by Dominika Langenmayr

Dominika Langenmayr

Catholic University of Eichstaett-Ingolstadt; CESifo (Center for Economic Studies and Ifo Institute)

Rebecca Lester

Stanford Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 24, 2017

Abstract

We study whether the corporate tax system provides incentives for risky firm investment. We analytically and empirically show two main findings: first, risk-taking is positively related to the length of tax loss periods because the loss rules shift some risk to the government; and second, the tax rate has a positive effect on risk-taking for firms that expect to use losses, and a weak negative effect for those that cannot. Thus, the sign of the tax effect on risky investment hinges on firm-specific expectations of future loss recovery.

Keywords: corporate taxation, risk-taking, net operating losses

JEL Classification: H250, H320, G320

Suggested Citation

Langenmayr, Dominika and Lester, Rebecca, Taxation and Corporate Risk-Taking (July 24, 2017). CESifo Working Paper Series No. 6566. Available at SSRN: https://ssrn.com/abstract=3014759

Dominika Langenmayr

Catholic University of Eichstaett-Ingolstadt ( email )

Auf der Schanz 49
Ingolstadt, D-85049
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Rebecca Lester (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/rebecca-lester

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