Research

Abstract: We study whether the adoption of state anti-patent troll laws incentivizes protected firms to be more tax aggressive. Non-practicing entities, or patent trolls, have widely been recognized as a social detriment by regulators, prompting many states in the U.S. to enact legislature designed to counteract patent trolling and spur within-state innovation. While prior studies have shown that anti-troll laws generally associate with ex-post positive social outcomes (e.g., an increase in innovation), we predict and find that the adoption of anti-troll laws gives rise to a loss in state tax revenues by firms exploiting the resulting increase in intellectual property (IP) to shift profits to lower-tax jurisdictions. Specifically, following the passage of anti-troll laws, 1) firms operating in adopting states report lower state effective tax rates and assign significantly more patents to no-tax states, and 2) adopting states experience lower corporate income tax revenue growth. Economically, our results suggest that firms operating in anti-troll states lower state tax burdens by 19 percent relative to unprotected firms on average. We also find that U.S. multinationals operating in anti-troll states exhibit significantly greater responsiveness to tax-motivated outbound income shifting incentives. Our study is the first to provide evidence that, in the ongoing battle against patent trolls, state legislators’ efforts to protect local firms could have unintended negative state tax revenue consequences.

Abstract: This study examines whether firm-specific tax policy uncertainty (TPU) influences corporate investment decisions. Investment theory predicts that with uncertain project cash flows, firms should elect to delay committing to investments. Consistent with this prediction, we find that TPU is negatively associated with both tax planning and other investments, incremental to the firm’s non-tax uncertainties. In exploring the consequences of greater TPU, we find evidence consistent with TPU associating with inefficient investment, which in turn harms future firm profitability. We further show that, during periods of unusually high TPU when tax planning investments are especially more valuable, firms appear to substitute away from general investments toward tax planning. These findings suggest that firms prefer to direct resources toward engaging with tax experts for guidance when the tax environment is more uncertain. Overall, we find that tax policy uncertainty has a negative effect on corporate investments and future firm performance.

Abstract: This study examines the impact of the Tax Cuts and Jobs Act of 2017 (TCJA) on negotiations between labor unions and U.S. multinational corporations (MNCs). Before the TCJA, U.S. MNCs operated under a worldwide tax system that levied incremental U.S. taxes on earnings repatriated from overseas, prompting MNCs to leave large cash balances abroad and simultaneously allowing them to shelter earnings from union demands. The TCJA resolves such “trapped cash” concerns by allowing MNCs to repatriate foreign cash without incurring incremental U.S. federal income tax. This elimination of the threat of repatriation tax cost opens access to previously sheltered foreign cash for domestic unions and incentivizes those unions to act on the opportunity to pressure employers to concede to union demands. Consistent with our prediction, we find that cash-rich MNCs become more vulnerable to collective bargaining activities of unions after the TCJA, evidenced by increases in union membership rates and both the frequency and duration of strikes. We also find supporting evidence to attribute the ex-post increase in union activity to the specific provision of the TCJA that “unchains” previously trapped cash. 

Abstract: This study examines the impact of the Tax Cuts and Jobs Act of 2017 (TCJA) on negotiations between labor unions and U.S. multinational corporations (MNCs). Before the TCJA, U.S. MNCs operated under a worldwide tax system that levied incremental U.S. taxes on earnings repatriated from overseas, prompting MNCs to leave large cash balances abroad and simultaneously allowing them to shelter earnings from union demands. The TCJA resolves such “trapped cash” concerns by allowing MNCs to repatriate foreign cash without incurring incremental U.S. federal income tax. This elimination of the threat of repatriation tax cost opens access to previously sheltered foreign cash for domestic unions and incentivizes those unions to act on the opportunity to pressure employers to concede to union demands. Consistent with our prediction, we find that cash-rich MNCs become more vulnerable to collective bargaining activities of unions after the TCJA, evidenced by increases in union membership rates and both the frequency and duration of strikes. We also find supporting evidence to attribute the ex-post increase in union activity to the specific provision of the TCJA that “unchains” previously trapped cash.