This study finds that stock return volatility is higher during periods of high tax policy uncertainty (TPU), even after controlling for other sources of general macroeconomic uncertainty. Further, we find that the relation between TPU and stock return volatility is more pronounced where firms...

Academic and anecdotal evidence has consistently shown that incentive systems often provide short-term payouts without regard for long-term risk. To prevent managers from exploiting the potential horizon mismatch between outcomes of performance and risk taking, the owners of the firm must be...