We incorporate fixed and variable costs into a cash flow based CAPM to investigate how each type of cost affects the cost of equity capital. A decrease in fixed costs always reduces cost of capital. With positive fixed costs, a decrease in the variable cost rate reduces cost of capital despite...

Many countries have imposed tax policies that limit the deductibility of interest costs, creating a plausibly exogenous increase in the net cost of borrowing. The limits are based on financial accounting numbers, adding a new incentive into managers’ choices. Firms in these countries are also...

Prior studies document that incentive factors (i.e., equity compensation, shareholder activism, financial constraints, etc.) motivate managers to avoid more taxes, which suggests that managers overlook tax planning opportunities (TPOs) in the absence of incentives. In this study, I use a...

Taking advantage of a unique financial reporting feature in the Chinese setting, this study examines whether the education level of a firm’s rank-and-file employees is associated with its level of tax planning. We conjecture that highly educated employees should either play an information role...

This study investigates whether the agency conflicts inherent in a dual class ownership structure are associated with the level of firms' tax avoidance. Dual class ownership presents a unique agency problem because insiders' voting rights (i.e., insiders' ability to control the firm) exceed...

Current U.S. reporting and tax laws create an incentive for some U.S. firms to avoid the repatriation of foreign earnings as the U.S. government charges additional corporate taxes on these transfers. Prior research suggests that the combined effect of these incentives leads some U.S....

We utilize new income tax reserve disclosures required under FIN 48 to examine whether managers use discretion over this accrual to manage earnings to meet the consensus analyst forecast. We find that firms with pre-managed earnings (i.e., earnings before the change in the tax reserve) that are...

This study examines the association between disclosures of unrecognized tax benefits made under FASB Interpretation No. 48 and existing measures of tax avoidance. Prior research suggests managers use discretion in accounting for income tax contingencies to meet key earnings targets. It is not...

This study provides evidence on whether investors value tax gross-up provisions for executives, and how the elimination of these provisions changes executive compensation. We examine the market response to tax gross-up eliminations and find investors react favorably to the removal of these...

The products and services of firms operating in sin industries (alcohol, tobacco, gaming, and firearms) run contrary to social norms and can produce significant negative externalities for society. As such, sin firms are at greater risk of incurring political costs in the form of additional...