Research | UNC Kenan-Flagler Business School

What’s in a (tax) name?

The destination based cash flow tax, or, as it was loving referred to among the large circle of economists who loved it, the DBCFT, was, at least in the minds of it supporters, an amazing tax. But, we don’t have one. One reason, I have heard talked about among tax people, is simply because the marketing of the tax was bad—starting with the name. DBCFT does not roll off the tongue. It does not conjure up favorable images of who will pay, or not pay, the tax. It’s too technical—not named so the every-person can understand it. What we name taxes matters. I call this phenomena optical taxation, where we pick names for taxes that conjure up images that make the tax appealing (if we want to pass it), or, make it look bad (if we want to get rid of it). Why, why the discussion around tax names?

Global Ripple Effects of Corporate Tax Reforms

We study international spillovers of corporate tax reforms in a fragmented global tax regime. 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. Our framework emphasizes two key intrinsic properties of intangible capital: non-rivalry and mobile ownership. We find the TCJA generated positive outward spillovers: First, it boosted U.S. MNEs’ intangible investment, raising their foreign subsidiaries’ output. Second, it increased tangible investment of foreign MNEs’ U.S. subsidiaries, incentivizing them to expand intangible investment at home. Conversely, a Global Minimum Tax (GMT) implemented by the rest of the world generates negative inward spillovers for the United States, even if U.S.-parented MNEs are exempt. These findings illustrate that there is no such thing as a purely domestic corporate tax policy.

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

Firms increasingly rely on external sources of innovation -- such as technology licensing, purchases of intangible assets, and business acquisitions -- to augment their internal R&D. 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. Using a difference-in-differences design, we show that more R&D-intensive firms significantly increased externally sourced innovation -- measured comprehensively using acquired intangible assets -- without reducing internal R&D. These firms subsequently achieved higher innovative efficiency and originality, explored new technological domains, were more likely to generate breakthrough patents, and became more profitable. The effects are significantly weaker among financially constrained firms and those in highly competitive industries, consistent with limited ability to reallocate resources toward external innovation. Analysis of inventor- and patent-level data supports a synergy channel, whereby collaborations between newly hired and incumbent inventors and greater technological proximity between external and internal innovations enhance innovation productivity. Overall, our findings provide causal evidence that external innovation complements, rather than crowds out, internal R&D, and that fiscal shocks to R&D incentives can reallocate capital and talent toward more productive innovation activities.

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

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. Using a difference-in-differences approach, we compare U.S. firms, which were directly exposed to the reform, with a matched sample of non-U.S. firms around the TCJA’s enactment. We find that U.S. borrowers experienced a significant reduction in loan spreads following the reform, consistent with lenders updating their expectations of improved firm cash flows and creditworthiness. The decline in loan spreads is more pronounced among firms with greater foreign exposure, higher tax savings, and tighter ex ante financial constraints. Additionally, we document adjustments in U.S. borrowers’ non-pricing loan terms, including a higher likelihood of covenant-lite provisions and a reduced incidence of collateral and performance pricing requirements. Overall, our findings highlight the importance of corporate tax policy in shaping financial contracting in private credit markets.

DaTax

Welcome to the UNC Tax Center’s Tax Data website, DaTax, a one stop shop to easily locate free data resources to support your research agenda. We plan to u...

UNC Tax Center Video Test

UNC Tax Center Research Director Jeff Hoopes introduces the TCJA Effects Tracker. ...

IRS Registry for Monetizing Energy Tax Credits Nears Completion

Bloomberg Tax highlights key takeaways from the Inflation Reduction Act Tax Incentives Panel Discussion that occurred at the 2023 UNC Tax Summit.

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.

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.

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.

Professor Jeff Hoopes with IRS Tax collecction in UNC Kenan-Flagler Office

Jeff Hoopes awarded the 2023 Bullard Faculty Research Impact Award

Jeff Hoopes has received the 2023 Bullard Faculty Research Impact Award which recognizes a professor whose research has had a significant impact on the practice of business. This award was created through the generosity of Clifford E. “Clif” Bullard Jr. (BSBA ’76), CEO of the Bullard Restaurant Group, and his wife Rachelle Bullard. Their goal was to inspire and provide incentives for faculty members to consider the impact on the business world as they choose research topics and communicate their results.

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.

Tax-Induced Organizational Complexity and Executive Performance Measurement

We examine how tax-induced organizational complexity (“TIOC”), which we define as the organizational complexity that would not exist in a zero-tax world, is associated with executive performance measurement.

Hoopes Highlighted in Discussions on Corporations’ Overseas Taxes

Jeff Hoopes, UNC Tax Center research director, was quoted in a Politico article and a letter from the U.S. Chamber of Commerce to the Chair of the Financial Accounting Standards Board supporting more overseas tax disclosure for global businesses.