We examine the effects of the 2017 Tax Cuts and Jobs Act's (TCJA) interest deduction limitation on suppliers. Using a difference-in-differences design, we find that suppliers with customers subject to the limitation ("affected suppliers") report increased accounts receivable of between 11.2% and 14.9% relative to their pre-TCJA average accounts receivable. Using a triple differences design, we provide more granular evidence by documenting that the limitation's effects on affected suppliers' accounts receivable are driven by suppliers with customers that report increased trade credit use (i.e., higher accounts payable). In cross-sectional analyses, we find that the effects are stronger when suppliers are smaller, have higher peer product similarity, operate in industries with low entry barriers, or are in the early stage of their life cycle, consistent with suppliers with weaker bargaining power providing more trade credit to customers compared to other suppliers. Turning to supplier consequences of increased accounts receivable, we find that affected suppliers' days sales outstanding and operating cycles increase. Next, we use path analyses to find that affected suppliers experience lower cash flows and higher risks due to their increased accounts receivable. Overall, our study provides evidence that the interest deduction limitation yielded externalities on affected firms' supply chains. Nous examinons les effets de la limitation de la d & eacute;duction des int & eacute;r & ecirc;ts pr & eacute;vue par la loi fiscale am & eacute;ricaine de 2017 (Tax Cuts and Jobs Act, TCJA) sur les fournisseurs. & Agrave; l'aide d'une m & eacute;thode de diff & eacute;rence dans les diff & eacute;rences, nous constatons que les fournisseurs dont les clients sont soumis & agrave; cette limitation (<< fournisseurs concern & eacute;s >>) font l'objet d'une divulgation d'une augmentation de leurs comptes & agrave; recevoir comprise entre 11,2 % et 14,9 % par rapport & agrave; leur moyenne avant la TCJA. & Agrave; l'aide d'une m & eacute;thode des triples diff & eacute;rences, nous fournissons des donn & eacute;es plus d & eacute;taill & eacute;es en d & eacute;montrant que les effets de la limitation sur les comptes & agrave; recevoir des fournisseurs concern & eacute;s sont dus aux fournisseurs dont les clients font l'objet d'une divulgation d'une augmentation de l'utilisation du cr & eacute;dit commercial (c'est-& agrave;-dire des comptes & agrave; payer plus & eacute;lev & eacute;s). Dans les analyses transversales, nous constatons que les effets sont plus marqu & eacute;s lorsque les fournisseurs sont de petite taille, ont des produits plus similaires & agrave; ceux de leurs concurrents, op & egrave;rent dans des secteurs d'activit & eacute; & agrave; faibles barri & egrave;res & agrave; l'entr & eacute;e ou en sont au d & eacute;but de leur cycle de vie, ce qui correspond au fait que les fournisseurs ayant un pouvoir de n & eacute;gociation plus faible accordent davantage de cr & eacute;dit commercial & agrave; leurs clients que les autres fournisseurs. En ce qui concerne les cons & eacute;quences de l'augmentation des comptes & agrave; recevoir pour les fournisseurs, nous constatons que le d & eacute;lai moyen de recouvrement et les cycles d'exploitation des fournisseurs concern & eacute;s augmentent. Ensuite, nous utilisons des techniques d'analyse de(s) chemin(s) pour constater que les fournisseurs concern & eacute;s connaissent une baisse de leurs flux de tr & eacute;sorerie et une augmentation des risques en raison de l'augmentation de leurs comptes & agrave; recevoir. Dans l'ensemble, notre & eacute;tude fournit des donn & eacute;es que la limitation de la d & eacute;duction des int & eacute;r & ecirc;ts a eu des externalit & eacute;s sur les cha & icirc;nes d'approvisionnement des entreprises concern & eacute;es.

We investigate whether judges’ political ideology affects corporate tax behaviors. We find firms engaging in less aggressive tax planning when Circuit Court judges are more liberal. Cross-sectionally, the deterrent effect of liberal judge ideology is more pronounced for firms that engage in judiciary-sensitive tax strategies, face higher enforcement risk from the Internal Revenue Service, or have larger reputational costs from tax disputes. Our findings further suggest that liberal judge ideology reduces firms’ R&D investments and market value by constraining tax planning. Overall, our evidence highlights the importance of judge ideology to firm behavior in the context of corporate tax planning.

This study examines whether firm-specific tax policy uncertainty (TPU) influences corporate investment decisions. Investment theory predicts that, with uncertain project cash flows, firms should elect to delay committing to investments. Consistent with this prediction, we find that TPU is negatively associated with both tax planning and other investments, incremental to the firm's nontax uncertainties. In exploring the consequences of greater TPU, we find TPU is associated with inefficient underinvestment, which negatively impacts future firm profitability. We further show that, during periods of unusually high TPU, when tax planning investments are especially more valuable, firms appear to substitute away from general investments toward tax planning. These findings suggest that firms prefer to direct resources toward engaging with tax experts for guidance when the tax environment is more uncertain. Overall, we find that tax policy uncertainty has a negative effect on corporate investments and future firm performance.

In a broad sample of publicly traded firms, we observe that the share of firms annually reporting pre-tax book losses increased from about 20% to 40% during 1988-2023. We also observe that 68% of those loss firms have positive cash tax payments (taxpaying loss firms). The amount of taxes paid by these loss firms is substantial and increasing over time. Surprisingly, we observe that taxes paid increase with the magnitude of pre-tax losses. This study seeks to understand the prevalence of taxpaying loss firms. We examine whether both the extensive margin-the likelihood that a loss firm pays taxes-and the intensive margin-the magnitude of taxes paid-are explained by firm characteristics. We find that multinational status, state taxes, consolidation differences, goodwill impairments, asset write-downs, extraordinary items, discontinued operations, depreciation differences, the frequency and magnitude of losses, and firm size are key determinants of both the likelihood and the amount of taxes paid by loss firms. We find that the decrease in the statutory tax rate included in the Tax Cuts and Jobs Act of 2017 did not decrease the tax burden on loss firms. & Agrave; partir d'un large & eacute;chantillon de soci & eacute;t & eacute;s cot & eacute;es en bourse, les auteurs constatent que la proportion des soci & eacute;t & eacute;s d & eacute;clarant chaque ann & eacute;e des pertes comptables avant imp & ocirc;ts est pass & eacute;e de 20 % & agrave; 40 % environ entre 1988 et 2023. Ils constatent & eacute;galement que 68 % de ces soci & eacute;t & eacute;s effectuent des paiements comptants de l'imp & ocirc;t (soci & eacute;t & eacute;s impos & eacute;es affichant des pertes). Le montant des imp & ocirc;ts pay & eacute;s par ces soci & eacute;t & eacute;s est substantiel et augmente au fil du temps. Contre toute attente, les auteurs observent que les imp & ocirc;ts pay & eacute;s augmentent avec l'ampleur des pertes avant imp & ocirc;ts. Cette & eacute;tude cherche & agrave; expliquer la pr & eacute;valence des soci & eacute;t & eacute;s impos & eacute;es affichant des pertes. Les auteurs examinent dans quelle mesure la marge extensive - la probabilit & eacute; qu'une soci & eacute;t & eacute; affichant des pertes paie des imp & ocirc;ts - et la marge intensive - le montant des imp & ocirc;ts pay & eacute;s - varient en fonction des caract & eacute;ristiques des soci & eacute;t & eacute;s. Selon ces r & eacute;sultats, le statut de multinationale, les imp & ocirc;ts d'& Eacute;tat, les & eacute;carts de consolidation, les d & eacute;pr & eacute;ciations de l'& eacute;cart d'acquisition, les d & eacute;valuations d'actifs, les & eacute;l & eacute;ments extraordinaires, les activit & eacute;s abandonn & eacute;es, les diff & eacute;rences li & eacute;es & agrave; l'amortissement, la r & eacute;currence et l'importance des pertes, ainsi que la taille de l'entreprise, sont des facteurs d & eacute;cisifs & agrave; la fois pour la probabilit & eacute; et le montant des imp & ocirc;ts pay & eacute;s par les soci & eacute;t & eacute;s affichant des pertes. Enfin, ils constatent que la diminution du taux d'imposition pr & eacute;vue par la loi Tax Cuts and Jobs Act de 2017 n'a pas r & eacute;duit la charge fiscale des soci & eacute;t & eacute;s affichant des pertes.

We examine the effects of the 2017 Tax Cuts and Jobs Act's (TCJA) interest deduction limitation on suppliers. Using a difference-in-differences design, we find that suppliers with customers subject to the limitation (“affected suppliers”) report increased accounts receivable of between 11.2% and 14.9% relative to their pre-TCJA average accounts receivable. Using a triple differences design, we provide more granular evidence by documenting that the limitation's effects on affected suppliers' accounts receivable are driven by suppliers with customers that report increased trade credit use (i.e., higher accounts payable). In cross-sectional analyses, we find that the effects are stronger when suppliers are smaller, have higher peer product similarity, operate in industries with low entry barriers, or are in the early stage of their life cycle, consistent with suppliers with weaker bargaining power providing more trade credit to customers compared to other suppliers. Turning to supplier consequences of increased accounts receivable, we find that affected suppliers' days sales outstanding and operating cycles increase. Next, we use path analyses to find that affected suppliers experience lower cash flows and higher risks due to their increased accounts receivable. Overall, our study provides evidence that the interest deduction limitation yielded externalities on affected firms' supply chains.

In this study, we provide evidence on the effects of state tax whistleblower laws. We exploit a novel 2010 amendment to New York’s False Claims Acts (FCA) that explicitly extended whistleblower incentives to corporate income tax whistleblowers. We identify treated firms (firms exposed to New York’s FCA) using establishment-level data and descriptive analyses. Using a sample of firms exposed to New York and neighboring states, we find evidence that New York’s FCA reduced state tax avoidance. In cross-sectional tests, we find that effects are increasing in firms that grant fewer employee stock options and industry regulation, consistent with deterrence increasing in employee and regulator monitoring. We also find evidence that New York’s FCA deterred federal tax avoidance, consistent with positive vertical tax externalities. Next, we focus on particular tax strategies and find evidence of a reduced probability of Double Irish tax structures, reduced relationships to tax planning banks, reduced use of special purpose vehicles, and reduced outbound tax-motivated income shifting. We also find evidence that firms with the lowest (highest) cost of relocation (1) reduced (did not change) establishment counts in New York but (2) did not change (reduced) state tax avoidance. Finally, we disentangle general ex ante deterrence from ex ante peer deterrence using hand-collected New York tax whistleblower press releases from the Attorney General. We find evidence of both types of deterrence. Overall, this study provides policy-relevant evidence on the deterrence effects of tax whistleblower laws. This paper was accepted by Suraj Srinivasan, accounting. Funding: Y. Lee acknowledges financial support from the College of Business at California State University, Long Beach. S. Ng acknowledges financial support from Singapore Management University. T. Shevlin acknowledges financial support from the University of California, Irvine [the Paul Merage Chair and the Merage School of Business]. A. Venkat acknowledges financial support from the McCombs School of Business at the University of Texas, Austin. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.02999 .

In the workplace, women are less likely than men to hold higher paying positions throughout the entire organization, not just top executive roles. We refer to this phenomenon as the gender position gap . Using novel gender and salary data on employees who hold various positions within firms, we examine the determinants of the gender position gap and its informativeness about future firm performance. We find that the gender position gap is wider for firms with larger female–male differences in human capital characteristics (prior work experience and education), fewer female leaders, and weaker monitoring (proxied by institutional ownership, analyst following, and firm size). Firms with larger gender position gaps have poorer future performance. This negative association is not driven by employees at the top or bottom end of the corporate hierarchy. The negative association is stronger for firms that rely more on human capital. Firms with a larger gender position gap also have lower future stock returns, which suggests that investors do not fully utilize information about gender position gaps. Overall, our findings are consistent with the view that the gender position gap contains information about future firm performance.

We analyze the impact of the 2021 Child Tax Credit (CTC) expansion using detailed transaction data from nearly two million individuals and difference-in-difference analyses around monthly CTC payments. We find that recipients significantly increase their consumption in the week following the payment versus the prior week, with more pronounced effects for lower-income recipients and those with more children. We also find a significant reduction in liquidity constraints for lower-income recipients, with reductions in overdrafts, use of high-interest payday loans, and use of gig work for supplemental income. Building on these initial findings, our analysis further delves into more nuanced, policy-targeted aspects: We observe a greater alleviation of liquidity constraints from monthly CTC payments compared with annual tax refunds. In addition, monthly payments decrease consumption volatility and increase stability in consumption levels. These results inform considerations for payment frequency. Furthermore, we provide insights into the income thresholds for the policy's phase-in and phase-out ranges by identifying the most pronounced consumption effects among the lowest-income recipients-who benefit from full refundability under the plan-and noting an absence of significant consumption changes among higher-income recipients. Our results present the first large-scale, transaction-based, empirical archival evidence of the effects stemming from the 2021 CTC amendments and provide insights for policy-related discussions.

This paper examines whether and how politicians’ ideologies influence corporate taxation. Our tests exploit the implementation of the 1978 Reform and Opening-up policy in China that significantly weakens the communist ideology. Using textual analyses of city secretaries’ speeches, we first establish that secretaries who joined the communist party after 1978 have a weaker communist ideology. We next show that, in the postreform period, firms in cities whose secretaries joined the communist party after 1978 have significantly lower effective tax rates than those of firms with secretaries joining the communist party beforehand. Further analyses reveal that tax benefit provisions and tax enforcement are the mechanisms through which secretaries’ ideologies influence corporate taxation. This paper was accepted by Eric So, accounting. Funding: This work was supported by the Research Grants Council of Hong Kong [General Research Fund 17502219]. K. Na acknowledges financial support from Cheung Kong Graduate School of Business. T. Shevlin acknowledges financial support from the Merage School of Business, University of California-Irvine. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.03268 .

In an acquisition, an earnout is a component of transaction price that is contingent upon future events. Despite its usefulness to acquirers in mitigating valuation risk, using an earnout also has a potentially undesirable tax consequence for the acquirer because there is no immediate step-up in tax basis for the earnout portion of deal consideration until the resolution of associated contingencies. We thus hypothesize that acquiring firms with high marginal tax rates (MTRs) are less likely to use earnouts. We analyze a sample of taxable acquisitions by U.S. public companies, holding constant other non-tax determinants of earnout use from prior research, and we find results consistent with our prediction. We also find some evidence that strong tax incentives can offset the effect of target valuation uncertainty, suggesting that acquiring firms facing sufficiently high MTRs are willing to trade off mitigating valuation risk for a full, immediate step-up in tax basis. We contribute to the prior literature on determinants of earnout use as well as the role of tax planning incentives in firm choices within mergers and acquisitions.

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Disclosure theory predicts that the likelihood of voluntary disclosures increases with the noise level in mandatory disclosures. We test this prediction by exploiting a unique setting where firms simultaneously provide two forecasts of the same metric-annual effective tax rates (ETRs). We find that managers are more likely to issue voluntary ETR forecasts when mandatory ETR forecasts contain more noise due to tax complexity, suggesting that managers resort to voluntary disclosure when mandatory disclosure constrains their ability to convey private information. Using analysts' ETR forecast revisions to assess the informativeness of the two ETR forecasts, we find that both forecasts are incrementally informative. In addition, analysts weight voluntary ETR forecasts more heavily, especially when voluntary ETR forecasts are non-GAAP based and when discrete items are present. Overall, we provide evidence on the relation between and the informativeness of voluntary and mandatory disclosures by examining two competing forecasts issued simultaneously.

Using a hand-collected sample of U.S. multinational firms’ foreign and domestic cash holdings, we evaluate the earnings persistence implications of changes in foreign and domestic cash and whether stock prices reflect these implications. Building on the earnings decomposition approach in Dechow, Richardson, and Sloan 2008 Journal of Accounting Research, 46 (3): 537–566, we find that, in the overall sample, changes in foreign cash are as persistent for future earnings as changes in domestic cash. In the cross-section, we find that foreign cash changes have higher persistence when foreign operations offer better growth opportunities and when repatriation taxes are lower. We then examine whether investors correctly price the persistence implications of foreign and domestic cash changes. We find a positive association between current foreign cash changes and one-year-ahead stock returns, suggesting that investors underreact to foreign cash changes or equivalently underestimate the earnings persistence of foreign cash changes. We further document that investors are more likely to misprice foreign cash changes when information processing costs are higher and when firms have poorer information environments. Our study sheds light on a recent paper by Harford, Wang, and Zhang 2017 The Review of Financial Studies 30 (5): 1490–1538, who find that investors discount foreign cash changes, which they attribute to agency costs and investment inefficiencies. Our findings suggest that the discount is more likely due to investor mispricing of foreign cash changes.

This study investigates how tax knowledge is diffused through auditors at the individual partner level. We find that firms sharing the same audit partner with low-tax firms exhibit lower effective tax rates (ETRs) but not for firms that share the same audit office but with different partners. Using a difference-in-difference (DID) research design, we show that firms'ETRs decline significantly after their existing audit partners start auditing a low-tax firm. Our findings suggest that the transfer of tax planning knowledge from low-tax firms to focal firms occurs mainly through common individual partners. Moreover, benefits to focal firms are stronger when their top executives have a social connection to the shared partners. Further analysis shows that audit partners are more likely to retain existing clients and charge higher audit fees for tax planning diffusion, indicating how audit partners benefit from sharing tax planning knowledge with their clients.

This study examines whether firm-specific tax policy uncertainty (TPU) influences corporate investment decisions. Investment theory predicts that with uncertain project cash flows, firms should elect to delay committing to investments. Consistent with this prediction, we find that TPU deters the undertaking of both tax planning and other investments, incremental to the firm’s non-tax uncertainties. We further show that, during periods of unusually high TPU when tax planning investments are especially more valuable, firms appear to substitute away from general investments toward tax planning. These findings suggest that firms prefer to direct resources toward engaging with tax experts for guidance when the tax environment is more uncertain. Overall, we find that tax policy uncertainty has a negative effect on corporate investments.

ABSTRACT Existing studies find that tax avoidance affects the cost of debt and equity in different ways but does not examine the consequences of these associations. This study examines a direct and important implication of the effect of tax avoidance on the cost of debt and equity: capital structure choices. Using logit regressions, we find that tax avoidance is positively associated with the probability of issuing equity rather than debt. We use mediation (i.e., path) analyses to provide evidence that the effects of overall tax avoidance and risky tax avoidance on pre-corporate tax cost of equity and debt partially explain our main effects. For stronger identification, we exploit a plausibly exogenous Ninth Circuit decision to implement a difference-in-differences design. Finally, we find indirect evidence that managerial focus on GAAP effective tax rate to estimate the after-tax cost of debt (Graham, Hanlon, Shevlin, and Shroff 2017), partially explaining our main results.

When reporting after-tax non–generally accepted accounting principles (GAAP) earnings, firms are required to adjust for the tax effects of exclusions. Since 2010, the Securities and Exchange Commission (SEC) has issued and updated compliance and disclosure interpretations (C&DIs), which specifically require firms to disclose the tax effects of exclusions. We assemble a detailed, hand-collected data set of S&P 1500 firms’ disclosures to provide the first large-sample evidence on the reporting of the tax effects of non-GAAP exclusions. We find three key results. First, echoing the SEC’s concern, a significant proportion of non-GAAP reporting firms do not follow the C&DI guidelines (i.e., they do not disclose the tax effects of exclusions). Second, among firms that disclose the tax effects of exclusions, we find that managers strategically select the tax rates applied to exclusions to achieve after-tax earnings targets. Third, manager-reported non-GAAP earnings are less persistent for future operating earnings and cash flows relative to non-GAAP earnings calculated by applying various benchmark tax rates to exclusions. This evidence suggests that managers’ strategic behavior in selecting the tax rates applied to exclusions pollutes reported non-GAAP earnings and reduces their usefulness for predicting future performance. Overall, our results shed light on a specific channel through which firms use non-GAAP reporting to meet or beat earnings expectations. This paper was accepted by Brian Bushee, accounting. Funding: N. (X.) Chen appreciates financial support from the University of Houston. T. Shevlin acknowledges financial support from the Paul Merage School of Business at the University of California–Irvine. P.-C. Chiu acknowledges the financial support received from the Hong Kong Research Grant Council [Grant RGC14522716]. Supplemental Material: Data files and the online appendix are available at https://doi.org/10.1287/mnsc.2022.4433 .

Employee turnover is a significant cost for businesses and a key human capital metric, but firms do not disclose this measure. We examine whether turnover is informative about future firm performance using a large panel of turnover data extracted from employees’ online profiles. We find that turnover is negatively associated with future financial performance (one-quarter ahead return on assets and sales growth). The negative association between turnover and future performance is stronger for small firms, for young firms, for firms with low labor intensity, when the local labor market is tight, and when the firm is trying to replace departing employees. The negative association disappears when turnover is very low, suggesting that a certain amount of turnover can be beneficial. Consistent with the concern that turnover increases operational uncertainty, we find a positive association between turnover and the uncertainty of future financial performance. Finally, we find a significant association between turnover and future stock returns, suggesting that investors do not fully incorporate turnover information. Our findings answer the call from the Securities and Exchange Commission to determine the importance of turnover disclosure. This paper was accepted by Brian Bushee, accounting.