Research | UNC Kenan-Flagler Business School

Global Ripple Effects of Corporate Tax Reforms

Dyrda, Sebastian; Hong, Guangbin; Ali Sajid, Muhammad; Steinberg, Joseph B | Using firm-level evidence on the 2017 U.S. Tax Cuts and Jobs Act (TCJA) and a quantitative general-equilibrium model, we illustrate how multinational enterprises (MNEs) propagate local policy shocks throughout the global economy.

Real Effects of External Innovation: Evidence from the Tax Cuts and Jobs Act

Du, Wendi; Li Dongmei | We study whether external innovation complements or substitutes internal R&D using the 2022 enforcement of Section 174 of the Tax Cuts and Jobs Act as an exogenous shock that raised the after-tax cost of internal R&D.

Corporate Tax Reform and the Cost of Bank Loans: Evidence from the Tax Cuts and Jobs Act

Gao, Mingze; Son Luong, Thanh; Qiu, Buhui; Shankar, Krishan; Wu, Eliza | This paper examines how the 2017 U.S. Tax Cuts and Jobs Act (TCJA), a landmark corporate tax reform, affected the pricing and structure of syndicated bank loans.

Market Reactions as a Macroeconomic Barometer: Evidence from the TCJA

Standridge, Kevin; Seegert, Nathan | We develop a new method to estimate the effects of the 2017 Tax Cuts and Jobs Act (TCJA) on GDP that can be applied to both past and future reforms.

Learning from 25 Years of Changes in Business Tax Policy

DeBacker, Jason Matthew; Haimiti, Aerfate | This paper summarizes the significant changes to the taxation of business income in the United States over the last 25 years and how the resulting variation has helped inform research on business taxation.

The Impact of IRC § 199A on the Value of Non-Publicly Traded Business Organizations

Lawrie, Gretchen; Cooper, John R. | The objective of this paper is to assess the influence of tax reductions from the Tax Cuts and Jobs Act ("TCJA"), on the firm value of non-publicly traded business organizations.

The Impact of the Tax Cuts and Jobs Act on Capital Investment in Publicly Traded United States Manufacturing Firms through 2020

Bharadwaj, Nimish A. | This paper examines the impact of the TCJA on capital investment in publicly traded U.S. manufacturing firms through 2020.

Executive Compensation, Corporate Tax, and Firm Investment

This paper examines how firms responded to a joint policy shock introduced by the 2017 U.S. Tax Cuts and Jobs Act (TCJA), which simultaneously replaced the progressive corporate tax schedule with a flat 21% rate and eliminated the deductibility of performance-based executive compensation under Section 162(m).

Manager Taxation and Investment Horizon

Marino, Amanda; Kirmse, Tanja; Previti, C | We document a novel dimension of agency issues among hedge funds.

When Mandatory Private Disclosure Meets Voluntary Public Disclosure: The Effect of Private Country-by-Country Reporting on Management Earnings Forecasts

Over 100 countries now require multinational corporations (MNCs) to annually disclose geographic breakdowns of their economic activities to tax authorities through country-by-country reporting (CbCR) to combat tax avoidance. We examine whether and how this mandatory private tax disclosure affects firms’ voluntary after-tax earnings forecasts. Using difference-in-differences and regression discontinuity designs to strengthen causal inference, we find MNCs are more likely to issue after-tax earnings forecasts after CbCR implementation. This effect is more pronounced for MNCs engaging in more tax avoidance prior to the policy adoption and for those experiencing an improvement in tax-related internal information quality following CbCR. Additionally, analysts' after-tax earnings forecast accuracy improves post-policy adoption, especially among firms that increase forecast issuances. We further document an increase in the precision and disaggregation of earnings forecasts, and effective tax rate forecasts post CbCR. Our findings suggest that mandatory private tax disclosure leads to improved voluntary public disclosures, generating external benefits for capital market participants.

The Effect of Private Country-by-Country Reporting on Mergers and Acquisitions

We examine the impact of mandatory private country-by-country reporting (CbCR)—a widely adopted tax transparency initiative—on mergers and acquisitions (M&As). Using difference-in-differences and regression discontinuity designs, we document a decrease in takeover premiums for affected targets in the post-CbCR adoption period relative to unaffected targets. The decrease in premiums is more pronounced for tax-aggressive targets, suggesting that acquirers price in the increased tax enforcement risk associated with these targets. More importantly, consistent with CbCR providing incremental information to acquirers and reducing information friction during the negotiation and due diligence process, we find a higher percentage of consideration paid in cash, shorter due diligence, and better post-acquisition performance for targets subject to CbCR. Our findings highlight the role of CbCR in reducing information frictions in M&As, indicating a spillover effect of mandatory private tax disclosure for a specific group of investors—M&A acquirers—beyond tax authorities. Author(s): Afrin, Farzana, and Chen, Novia (Xi), and Chi, Sabrina, and Persson, Anh

Do Private Country-by-Country Disclosures to Foreign Tax Authorities Influence U.S.Multinational Firms’ Public Financial Statement Disclosures about Foreign Operations?

We investigate whether U.S. multinational corporations (MNCs) that are required to provide private country-level financial disclosures to foreign tax authorities subsequently change their public financial statement disclosures about foreign operations. Given differing incentives to provide information about operations in tax haven and non-tax haven countries, we separately examine changes in financial statement disclosures about operations in haven vs. non-haven countries. We also investigate whether tax audit risk moderates U.S. MNCs’ public disclosure responses to an increase in required, private disclosures to foreign tax authorities. We use the implementation of country-by-country reporting (CbCR) as our research setting and we measure public financial statement disclosures about foreign operations via text analysis tools that identify offshore words that appear in the same sentence as nation words (“foreign offshore sentences”), using Hoberg and Moon’s (2017) dictionary. We provide evidence that affected U.S. MNCs significantly reduced the number of foreign offshore sentences that appear in their financial statements after the implementation of CbCR, relative to U.S. MNCs not affected by CbCR. This reduction is driven by decreases in foreign offshore sentences about operations in non-haven countries and by firms subject to higher tax audit risk. We interpret our findings as consistent with U.S. MNCs striving to downplay the significance of operations in higher tax rate countries so that public financial statement disclosures are more closely aligned with private CbCR disclosures to foreign tax authorities.

The long way to tax transparency: lessons from the early publishers of country-by-country reports

In this paper, we analyse a sample of voluntarily published country-by-country reports (CbCRs) of 35 multinational enterprises (MNEs). We assess the value added and the limitations of qualitative and quantitative information provided in the reports based on a comparison to individual MNEs’ annual financial reports and aggregate CbCR data provided by the OECD. In terms of data quality, we find that the inclusion of intra-company dividends and equity-accounted profits are a minor concern on average but that for individual MNEs corrections might be substantial. Our sample MNEs seem to pay higher effective tax rates than the global average and many of them report relatively little profit in tax havens. We only find a very weak correlation of the location of profits and effective tax rates. This might indicate that more tax transparent MNEs avoid taxes less aggressively. However, our assessment of different tax risk indicators reveals important variations between companies. Authors: Aliprandi, Giulia, and Faccio, Tommaso, and Godar, Sarah, and Jansky', Petr, and Ruiz, Katia Toledo

Tax Competition and Employment

We examine how exposure to international tax competition affects domestic firms’ employment. Consistent with prior work, we find evidence that reductions in foreign tax rates affect the domestic competitive environment via increases in import competition and investment in foreign-owned subsidiaries.

Tax-Loss Harvesting with Cryptocurrencies

We describe the taxation landscape in the cryptocurrency markets, especially concerning U.S. taxpayers, and examine how recent increases in tax scrutiny have led to changes in crypto investors’ trading behavior.