We examine whether firms hold more cash in the face of tax uncertainty. Because of gray areas in the tax law and aggressive tax avoidance, the total amount of tax that a firm will pay is uncertain at the time it files its returns. The tax authorities can challenge and disallow the firm’s tax positions, demanding additional cash tax payments.
The Great Recession of 2008 came with a counterintuitive twist – the unprecedented growth of minority-owned small businesses in the U.S. But although the data shows that the representation of minority firms in the small business ecosystem increased from 2007 to 2012 while the percentage of white-owned firms decreased, the larger question is whether those minority firms also made headway toward achieving equity or parity with white-owned businesses.
We measure the racial/ethnic densities (RAEDs) of executives in a random sample of 523 US publicly traded companies and the S&P 500®. When we calibrate the RAEDs of executives as a whole against the RAEDs of the 2019 US population, we find that American Indians/Alaska Natives, Blacks and Hispanics are underrepresented and Whites are overrepresented. However, when we calibrate executive RAEDs against a benchmark that seeks to take into account key features of the demand for and supply of proto-executive talent, namely the RAEDs of the cohorts of students graduating with a bachelor’s degree from the broad New York Times 2017 list of the top 100 US four-year colleges and universities, matched to executives’ BA/BS graduation years, mostly different and at times opposite findings obtain.
Marketing academics and practitioners alike remain unconvinced about the chief marketing officer's (CMO's) performance implications. Whereas some studies propose that firms benefit financially from having a CMO in the C-suite, other studies conclude that the CMO has little or no effect on firm performance.
Why do young firms pay less? Using confidential microdata from the US Census Bureau, we find lower earnings among workers at young firms. However, we argue that such measurement is likely subject to worker and firm selection. Exploiting the two-sided panel nature of the data to control for relevant dimensions of worker and firm heterogeneity, we uncover a positive and significant young-firm pay premium. Furthermore, we show that worker selection at firm birth is related to future firm dynamics, including survival and growth. We tie our empirical findings to a simple model of pay, employment, and dynamics of young firms.
We study how an improvement in contracting institutions due to the 1999 U.S.-China bilateral agreement affects U.S. firms’ innovation. We show that U.S. firms operating in China decrease their process innovations—innovations that improve firms’ own production methods—following the agreement.
In this week’s commentary, we’ll discuss the robustness of the improved health statistics, what the president’s executive orders mean for the economy and the first estimates from our undetected cases model. We do this with an eye toward what could be impending deterioration on both the pandemic and economic front.
In a series of very influential studies, McKinsey (2015; 2018; 2020; 2023) reports finding statistically significant positive relations between the industry-adjusted earnings before interest and taxes margins of global McKinsey-chosen sets of large public firms and the racial/ethnic diversity of their executives. However, when we revisit McKinsey’s tests using data for firms in the publicly observable S&P 500® as of 12/31/2019, we do not find statistically significant relations between McKinsey’s inverse normalized Herfindahl-Hirschman measures of executive racial/ethnic diversity at mid-2020 and either industry-adjusted earnings before interest and taxes margin or industry-adjusted sales growth, gross margin, return on assets, return on equity, and total shareholder return over the prior five years 2015–2019.
We study how public and private disclosure requirements interact to influence both tax regulator enforcement and firm disclosure. We find that, following Schedule UTP, firms significantly increased the quantity and altered the content of their tax‐related disclosures, consistent with lower tax‐related proprietary costs of disclosure. Our results suggest that changes in SEC disclosure requirements altered the IRS's behavior with regard to public information acquisition, and, relatedly, changes in IRS private disclosure requirements appear to change firms’ public disclosure behavior.
Elevated levels of government debt raise concerns about their effects on long-term growth prospects. Using the cross section of US stock returns, we show that (i) high-R&D firms are more exposed to government debt and pay higher expected returns than low-R&D firms; and (ii) higher levels of the debt-to-GDP ratio predict higher risk premia for high-R&D firms.
We develop a model to analyze the optimality of allowing firms to disclose various kinds of information prior to initial public offerings (IPOs) and seasoned equity offerings (SEOs), and of alternative rules to govern private securities litigation.
Although subsidiary disclosures in firms’ filings with the Securities and Exchanges Commission (SEC; Exhibit 21) represent the most granular required public disclosure of a firm's geographic footprint, little is understood about the quality of the disclosure, and anecdotal evidence suggests firms may not fully comply with the disclosure requirements. We use data provided by multinational firms to the Internal Revenue Service regarding their foreign subsidiary locations to explore the accuracy of public subsidiary disclosures on Exhibit 21 of Form 10‐K per SEC rules.
We study commitments to reduce emissions by firms subject to the European Union Emission Trading System (EU ETS), the world's largest cap-and-trade program. Commitments are associated with a drop in the number of carbon allowances surrendered, consistent with firms taking actions to reduce their emissions. However, firms subsequently increase their sales of allowances on the secondary market, transferring the right to pollute to others and potentially leaving aggregate emissions unchanged.
Recent theory suggests that firms incorporate synergistic interrelationships among executives into optimal incentive design (Edmans et al. 2013). We focus on Pay Performance Sensitivities (PPS) and use dispersion in PPS across top executives as a proxy for the incentive design component shaped by an executive team’s synergy profile.
Academics and business leaders shared a panel at our recent Frontiers conference, showing how each can offer insights to help one another develop a broader, shared understanding of changes in the labor market.
We investigate whether firms in close customer–supplier relationships are better able to identify and implement tax avoidance strategies via supply chains. Consistent with our prediction, we find that both principal customers and their dependent suppliers avoid more taxes than other firms. Further analysis suggests that principal customers and dependent suppliers likely engage in tax strategies involving shifting profits to tax haven subsidiaries.
We document differences in human capital deployment between diversified and focused firms. We find that diversified firms have higher labor productivity and that they redeploy labor to industries with better prospects in response to changing opportunities. The opportunities and incentives provided in internal labor markets in turn affect the development of workers' human capital. We find that workers more frequently transition to other industries in which their diversified firms operate and with smaller wage losses than workers in the open market, even when they leave their original firms. Overall, internal labor markets provide a bright side to corporate diversification.