WORKING PAPERS
“Tariff Uncertainty and the Firm Information Environment”
Abstract: This study examines how firm-specific tariff concerns affect the production and incorporation of earnings-related information in capital markets. Using 20,782 earnings calls by U.S. public firms beginning in 2024, I construct a firm-quarter measure of tariff discussion based on the number of tariff-related sentences per 100 transcript sentences. I supplement this measure with large-language-model assessments of tariff exposure, uncertainty, and management response. Using firm and calendar-quarter fixed effects, I find that greater tariff discussion is associated with increased analyst forecast dispersion and reduced analyst coverage, but not significantly greater consensus forecast error. Stock prices also respond more strongly to earnings surprises when tariff discussion is elevated, and tariff intensity is positively associated with post-call abnormal returns, consistent with tariff-related information affecting the interpretation and incorporation of earnings news. In contrast, I find little evidence that tariff discussion consistently changes bid-ask spreads around earnings announcements. Additional analyses indicate that the market response varies with firms’ underlying tariff exposure and management preparedness. Together, the results show that tariffs affect not only firms’ operations and costs but also how analysts and investors process firm-specific information.
“Do Commercial Property Taxes Affect Business Microlocation Decisions?” with Fabio Gaertner and Jeff Hoopes
Abstract: This study examines how commercial property taxes shape business micro-location decisions, that is, where within counties firms choose to locate. Using establishment-level data for millions of U.S. businesses and a spatial discontinuity design at county borders, we isolate the effect of property-tax differentials while holding other local characteristics constant. We find that firms disproportionately locate on the lower-tax side of borders, especially where tax differentials are largest, showing a 6-7 percent reallocation of establishments in high-differential areas. The effect is roughly twice as strong for low-foot-traffic businesses, consistent with greater flexibility in site choice. To validate the mechanism, we survey U.S. mayors and find that those in high-tax or high-differential regions overwhelmingly view property taxes as important to business location decisions. Together, the results reveal that even modest local tax differences can meaningfully distort the spatial distribution of economic activity.
“An Examination of Uncertain Tax Position Reserves around the Purchase of Auditor Provided Tax Services” with Dan Lynch, Max Pflitsch, and Joe Schroeder
Abstract: Recent global audit failures and audit firms’ renewed emphasis on expanding their consulting practices have drawn increased attention to the effects of non-audit services on audit quality. We examine how firms’ tax reporting changes around the first-time purchase of auditor-provided tax services (APTS). Using detailed data on uncertain tax position (UTB) reserves, we find that companies report higher reserves in the year before they begin purchasing APTS, followed by a reversal after the purchase. These shifts are concentrated in the discretionary component of reserves, suggesting temporary changes in auditor scrutiny and client reporting behavior during the transition period. We also find that tax reserves are less accurate around these initial purchases, indicating short-term disruptions in reporting precision as audit firms and clients adjust to the new service relationship. Overall, the results highlight how the introduction of APTS can influence firms’ tax reporting dynamics in the near term and contribute to broader discussions about the role of non-audit services in practice.
“Tax Avoidance Post-TCJA” with Fabio Gaertner and Mary Vernon
Abstract: This paper examines how corporate tax avoidance and tax risk changed following the enactment of the Tax Cuts and Jobs Act of 2017 (TCJA). The TCJA lowered the corporate statutory tax rate from 35 to 21 percent and restructured international taxation, fundamentally altering firms’ cost-benefit calculus for tax planning. Using multiple measures of tax avoidance and tax risk, we compare firms with historically high and low tax avoidance before and after the reform. We find that non-avoiders’ effective tax rates declined consistent with the rate cut, while avoiders’ rates remained stable, indicating a reduction in aggressive tax strategies that became less rewarding under the new regime. Measures of tax risk, including uncertain tax benefits, disclosure-based proxies, analyst dispersion, and tax restatements also fell sharply for avoiders, narrowing the gap between avoiders and non-avoiders. Overall, our results suggest that the TCJA reduced the intensity and uncertainty of corporate tax avoidance, particularly among firms that had previously engaged in the most aggressive strategies.
“Financial Reporting-Influenced Tax Policy” with Erik Beardsley, Michelle Hutchens, and Dan Lynch
This study examines the effects of financial reporting-influenced tax policy on corporate behavior, focusing on states’ staggered adoption of combined reporting and accompanying Deferred Tax Relief Deductions (DTRDs). Combined reporting had the potential of increasing some firms’ reported tax expense and deferred tax liabilities, creating undesirable financial statement consequences for public companies. In response, some states adopted DTRDs in conjunction with combined reporting, a temporary deduction designed specifically to offset these financial reporting effects and signal a more business-friendly environment. Using a difference-in-differences design, we compare firms exposed to combined reporting with and without DTRDs to assess how these laws influence real decisions. We find that firms are less likely to relocate subsidiaries or headquarters out of states that paired combined reporting with DTRDs, suggesting that the financial reporting relief mitigated deterrents to in-state investment. We also find that firms are more likely to use after-tax performance metrics in executive compensation contracts when DTRDs are enacted, consistent with executives’ greater willingness to tie compensation to after-tax outcomes when reporting effects are softened. Overall, our findings show that tax policies designed with financial reporting considerations in mind can meaningfully shape firms’ location and contracting decisions.
DORMANT PROJECTS
“Tax Protests” (Registered Report Submission) with Fabio Gaertner and Jeff Hoopes
This proposed study investigates the impact of corporate tax avoidance on consumer behavior. We overcome challenges in previous studies by conducting a field experiment involving real-life tax protests at retail stores. These protests are designed to inform consumers about corporate tax practices, increasing awareness and salience of corporate tax avoidance to potential consumers. Our findings will provide valuable insights into the reputational costs of tax avoidance, informing both corporate strategies and regulatory policies aimed at enhancing tax transparency.