Taxation and Corporate Risk-Taking
Langenmayr, Dominika, Lester, Rebecca
The Accounting Review · 2018 · Volume 93 · Issue 3
Abstract
We study whether the corporate tax system provides incentives for risky firm investment. We analytically and empirically show two main findings: first, risk-taking 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 weak 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. JEL Classifications:H25; H32; G32.
Keywords
corporate taxation, risk-taking, net operating losses
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