Investor Perceptions of the Book Minimum Tax

September 28, 2022
Working Paper

The Inflation Reduction Act establishes a new 15 percent corporate minimum tax on large U.S. corporations’ adjusted financial accounting income. While the minimum tax is estimated to raise $222 billion over 10 years, critics fear firms will manipulate their accounting earnings to reduce their tax liabilities, resulting in less revenue raised. Further, given the current political environment future legislatures could gut the tax, further eroding estimated tax revenues. Using an event study, we examine the extent to which investors believe this tax will reduce firm value. We examine stock market reactions around key legislative developments leading to the enactment of the book minimum tax. Our findings show targeted firms experience significantly lower stock returns than non-targeted firms during the enactment process (about 1.4 to 1.8 percent). In aggregate, our findings are consistent with the Joint Committee on Taxation’s revenue estimates. In cross-sectional tests, we do not observe that the firms most likely to avoid the tax via earnings management experience more positive returns, suggesting the market does not anticipate firms avoiding the tax via earnings management. Overall, our results suggest investors do not expect firms to largely avoid this tax. Instead, they expect a significant portion of the corporate minimum tax will be remitted by firms and borne by shareholders.   More

Proximity and the Management of Innovation

March 22, 2022
White Paper

UNC Tax Center Research Scholars Stephen Glaeser and Eva Labro in addition to Chloe Glaeser, UNC Assistant Professor of Operations, will have their research published in Management Science. Their research examines the tax incentives that encourage firms to locate R&D facilities away from corporate headquarters and the consequences this has on productivity. More

Tax Planning Knowledge Diffusion via the Labor Market

May 12, 2021
Working Paper

This paper examines the extent to which the labor market facilitates the diffusion of tax planning knowledge across firms. Using a novel dataset of tax department employee movements between S&P 1500 firms, the researchers find that firms experience an increase in their tax planning after hiring a tax employee from a tax aggressive firm. This finding is robust to various research designs and specifications. More

Tax Reform Made Me Do It!

November 29, 2018
Working Paper

This paper examines corporations’ actions, and statements about actions, following the tax law change known as the Tax Cuts and Jobs Act (TCJA). Specifically, we examine four different outcomes — bonuses (or other actions that benefit workers), announcements of new investments, share repurchases, and dividend announcements. More

Strategic Subsidiary Disclosure

March 10, 2018
Working Paper

We use data multinational firms provide to the Internal Revenue Service regarding their foreign subsidiary locations to explore whether some firms fail to publicly disclose subsidiaries in some countries, even when the subsidiaries are significant and should be disclosed per Security and Exchange Commission rules. More

U.S. Firms on Foreign (Tax) Holidays

August 17, 2017

We undertake the first large-sample examination of foreign tax holiday participation among U.S. corporations. Tax holidays are temporary reductions of tax granted by governments, usually in conjunction with new business investment. More

Shareholder Wealth Effects of Border Adjustment Taxation

April 24, 2017

We examine the effects of a proposed border adjustment tax on the share prices of publicly traded firms. Border adjustment refers to exempting export revenue from taxation while also disallowing deductions for the cost of imports, and has been proposed as a potential U.S. corporate tax reform. More

The Taxman Cometh: Does Tax Uncertainty Affect Corporate Cash Holdings?

March 31, 2017

We examine whether firms hold more cash in the face of tax uncertainty. More

Is the Market Grossed out by Gross-Ups? An Investigation of Firms that Pay Their CEOs’ Taxes

January 23, 2017

This study provides evidence on whether investors value tax gross-up provisions for executives, and how the elimination of these provisions changes executive compensation. More

Public Tax-Return Disclosure

December 20, 2016

We investigate the effect of public disclosure of information from corporate tax returns filed in Australia on consumers, investors, and the corporations themselves that were subject to disclosure. More