Publications

R&D and the rising foreign profitability of U.S. multinational corporations with Jing Huang and Linda Krull. Forthcoming, The Accounting Review.

How reliably do empirical tests identify tax avoidance? with Jordan Nickerson, Jeri Seidman and Bridget Stomberg. Forthcoming, Contemporary Accounting Research.

Transparency and tax evasion: Evidence from the Foreign Account Tax Compliance Act (FATCA) with Rebecca Lester and Kevin Markle. 2020, Journal of Accounting Research 58(1): 105-153.

Repatriation taxes and foreign cash holdings: The impact of anticipated tax reform. with Joseph Piotroski and Rimmy Tomy. 2019, Review of Financial Studies 32(8): 3105-3143.

Using IRS data to identify income shifting to foreign affiliates with Lillian Mills and Bridget Stomberg. 2019, Review of Accounting Studies 24(2): 694-730.

Income shifting using a cost-sharing arrangement with Richard Sansing. 2019, Journal of the American Taxation Association 41(1): 123-136.

Unprofitable affiliates and income shifting behavior with Ken Klassen and Jeri Seidman. 2017, The Accounting Review 92(3): 113-136.

Does a common set of accounting standards affect tax-motivated income shifting for multinational firms? 2016, Journal of Accounting and Economics 61(1): 145-165.

  • American Taxation Association / PricewaterhouseCoopers Outstanding Tax Dissertation Award 2014
  • International Accounting Section Outstanding International Accounting Dissertation Award 2014

Internal control quality: The role of auditor-provided tax services with Matthew Ege and Bridget Stomberg. 2015, The Accounting Review 90(4): 1469-1496.

Distilling the reserve for uncertain tax positions: The revealing case of Black Liquor with John Robinson and Bridget Stomberg. 2014, The Review of Accounting Studies 19(1): 456-472.

When are enhanced relationship tax compliance programs mutually beneficial? with Richard Sansing and Jeri Seidman. 2013, The Accounting Review 88(6): 1971-1991.

Book review of Developing a world tax organization: The way forward (not peer-reviewed) with Lillian Mills. 2010, Journal of the American Taxation Association 32(1): 84-86.

Working Papers

The effect of Innovation Box regimes on income shifting and real activity

with Shannon Chen, Michelle Hanlon, and Rebecca Lester

Presented at Stanford Accounting Summer Camp 2016, Summer School on Taxation and R&D at the University of Mannheim 2017.

We study whether innovation box tax incentives, which reduce tax rates on innovation-related income, are associated with tax-motivated income shifting and local investment in the countries that implement these regimes. Using a matched sample of European multinationals’ subsidiaries operating in Europe, we find evidence consistent with firms engaging in less tax-motivated income shifting out of the country following the implementation of innovation boxes that provide the greatest tax benefits. We also find that innovation box regimes are associated with higher levels of fixed asset investment. Our study contributes to the patent box literature by evaluating outcomes that the literature has not previously examined and by informing the ongoing policy debate regarding the economic effects of innovation box regimes.

The effect of income-shifting aggressiveness on corporate investment

with Ken Klassen and Jeri Seidman

Presented at the 3rd Berlin-Vallendar Conference on Tax Research 2017, the 2018 University Muenster Tax Symposium, and the 2018 Texas-Waterloo Taxation Research Conference.

We investigate whether intra-firm tax-motivated income shifting affects investment decisions. We model the complex interaction between two affiliates of a multinational corporation when the transfer price is related to an external market price and is used for both tax and internal reporting. Our model predicts that tax aggressiveness and affiliate investment decisions are positively related in equilibrium, and using affiliate-level data on multinational corporations to develop a firmspecific measure of their sensitivity to cross-border tax incentives, our tests find this relation. We further estimate that the typical positive relation between investment opportunities and affiliate investment is reduced by aggressive income shifting, consistent with the model. By empirically testing the theory that income-shifting aggressiveness alters equilibrium production decisions, we document that multinational corporations’ tax considerations alter their investment decisions and extend the literature on investment distortions.

The effect of foreign cash holdings on internal capital markets and firm financing

with Rebecca Lester

Presented at Stanford Accounting Summer Camp 2017, George Washington University Cherry Blossoms Conference 2017, University of Iowa, University of Chicago, London Business School.

Prior to 2018, U.S. repatriation taxes motivated companies to retain cash offshore. Using confidential jurisdiction-specific data from the Bureau of Economic Analysis, we find that firms with high tax-induced foreign cash have approximately 3.3 percent higher domestic liabilities relative to other multinationals, equivalent to $152.2 million more domestic debt per firm, or approximately $98.9-$141.9 billion in aggregate. We next examine motives for firms with tax-induced foreign cash to borrow domestically, finding this behavior is associated with shareholder payouts and some domestic investment spending. Finally, repatriations and intercompany loans from foreign subsidiaries act as substitutes and complements, respectively, to external borrowings.

Do targeted business tax subsidies achieve expected benefits?

with Rebecca Lester and Aneesh Raghunandan

Presented at Stanford Accounting Summer Camp 2018, the University of Chicago, Indiana University, London Business School, 2019 Minnesota Accounting Conference, Northwestern University, the University of California at Irvine, the 2019 UNC Tax Symposium, and the University of Mannheim

We examine the association between thousands of state and local firm-specific tax subsidies and business activity in the surrounding county, measured as the number of employees, aggregate wages, per capita employment, per capita wages, and number of business establishments. Using three different matched control groups, we find a positive association between subsidies and the employment measures. However, we show that local information – measured based on subsidyspecific disclosures, public awareness, and local press coverage – plays an important role in the effectiveness of subsidies. We also demonstrate that (i) receipt of multiple or subsequent subsidies in the same counties is critical for these employment outcomes and (ii) results are concentrated in the largest subsidy packages by dollar value. In addition, we observe mixed evidence for the relation between subsidies and business establishments and find little to no local effects for over 1,000 subsidies that cost approximately $99.8 million in aggregate. By providing a large-scale empirical analysis of the relation between firm-specific tax subsidies and aggregate economic activity at the county level, we extend a literature that generally focuses on the real effects of statutory tax policies that impact all firms in a jurisdiction. We also contribute to the accounting literature by examining the role of the local information environment in subsidy effectiveness.

Examining the immediate effects of recent tax law changes on the structure of executive compensation.

with Charles McClure and Bridget Stomberg.

We exploit a December 22, 2017 law change to examine the relation between corporate taxes and executive compensation. The so-called “Tax Cuts and Jobs Act” (TCJA) repealed a long-standing exception that previously allowed publicly-traded companies to deduct executives’ qualified performance-based compensation in excess of $1 million. The new regime is effective for tax years beginning after December 31, 2017. Using a difference-in-differences design to examine executive compensation paid in fiscal years 2017 and 2018, we find no evidence that firms impacted by the TCJA in their 2018 fiscal years changed total compensation, compensation mix, or pay-performance sensitivity relative to control firms that are not subject to the new regime until their 2019 fiscal years. These findings suggest Congress may have structured the law inefficiently or that Treasury delayed guidance for too long, potentially causing delays in firms’ responses.

Real effects of private country-by-country disclosure.

with Marcel Olbert.

Online Appendix.

We investigate the effects of mandatory private Country-by-Country (CbC) disclosure to European tax authorities on economic activity. Using rich data on the operations of multinational firms, we exploit the threshold-based application of this 2016 disclosure rule in a regression discontinuity design. We find evidence consistent with firms affected by the disclosure mandate reducing ownership in tax haven subsidiaries relative to unaffected firms and thereby increasing transparency in their previously opaque organizational structure. We also observe that affected firms increasingly allocate revenue, employment, total assets, and, correspondingly, tax payments to subsidiaries in low-tax European countries. Additional tests at the consolidated firm-level and at the subsidiary-level support the conclusion that firms shift real activities away from operations outside Europe – including from tax havens – to Europe, particularly to non-haven European countries with low corporate income tax rates. Collectively, our findings suggest that mandatory CbC disclosure curbs the most aggressive tax planning achieved through tax haven operations but also affects the allocation of multinationals’ real economic activities.

Does tax enforcement disparately affect domestic versus multinational corporations around the world?

with Bridget Stomberg and Brian Williams

Presented at the Indiana University Spring Tax Conference 2018 and the University of Toronto.

Tax enforcement around the world has received increased attention since the Global Financial Crisis, with much focus on curbing the potentially harmful tax practices of multinational entities. Yet it is likely that multinational entities can better respond to home-country enforcement efforts than domestic firms because multinationals have opportunities for tax avoidance in multiple jurisdictions whereas domestic firms do not. We therefore examine whether there is a differential relation between changes in enforcement spending and the tax avoidance of domestic versus multinational entities. Using OECD data on tax enforcement spending by 46 countries from 2005 to 2013, we find that although increases in enforcement spending are related to less firm-level tax avoidance on average, the negative relation is concentrated among domestic firms; we find no little evidence of decreased tax avoidance among multinationals. Our results suggest that domestic firms, not multinationals, bear the burden of increased tax enforcement.