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Taxation and Corporate Risk-Taking

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  • Langenmayr, Dominika

    (Catholic University of Eichstatt-Ingolstadt and CESifo, Munich)

  • Lester, Rebecca

    (Stanford University)

Abstract

We study whether the corporate tax system provides incentives for risky firm investment. We analytically and empirically show two main findings: first, risktaking 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 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.

Suggested Citation

  • Langenmayr, Dominika & Lester, Rebecca, 2016. "Taxation and Corporate Risk-Taking," Research Papers 3470, Stanford University, Graduate School of Business.
  • Handle: RePEc:ecl:stabus:3470
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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