Research

The value of a loss: The impact of restricting tax loss transfers. TRR 266 Accounting for Transparency Working Paper Series No. 128; with E. Casi, B. Stage & J. Voget 

Accepted for publication in "Journal of Accounting Research"

We study the economic consequences of anti-loss trafficking rules, which disallow the use of loss carryforwards as a tax shield after a substantial ownership change. We use staggered changes to these rules in the EU27 Member States, Norway, and the United Kingdom from 1998 to 2019 and find that limiting the transfer of tax losses is related to the number of mergers and acquisitions (M&A) declining by 18%, driven by loss-making targets. Turning to broader industry dynamics, we find decreases in survival rates of young companies after tighter regulations. Loosening of regulation is associated with increased firm survival. Tightening (loosening) anti-loss trafficking rules is related to decreased (increased) industry productivity, especially in R&D-intensive industries that are more prone to loss-making. Finally, tighter anti-loss trafficking rules are associated with lower deal synergies and risk-taking. All effects concentrate in strict regimes.

Too much "skin in the game" ruins the game: Evidence from managerial capital gains taxes. ZEW Discussion Paper No. 23-028; with C. Yen

Co-investment, often seen as a remedy for agency problems, may also incentivize asset managers to cater to their private interests. We find evidence that mutual fund managers with substantial co-investment stakes adjust their risk-taking to prioritize private tax considerations. Using the enactment of the American Taxpayer Relief Act of 2012 as an exogenous shock to managerial capital gains taxes, we show that managers with above-median co-investment significantly increase portfolio risk relative to those with below-median stakes. This effect does not appear to be driven by classical agency incentives. Instead, co-investing managers shift risk by tilting portfolios toward higher beta exposure, leading to a deterioration in fund performance. Our findings highlight co-investment as a transmission mechanism through which manager-level tax shocks affect fund-level portfolio decisions.

Preserving jobs, freezing dynamics? Employment effects of inheritance tax relief. Available upon request; with C. Bartels, K. Holzheu, G. Locks & D. Roth

In this paper, we analyze the impact of tying preferential tax treatment of family firms undergoing succession to employment preservation clauses. Exploiting an inheritance and gift tax reform in Germany in 2016 that expanded employment preservation clauses to small firms, we show that constrained firms are ca. 1–3% smaller, mainly driven by a freeze in new hiring and postponed growth. This adjustment begins before the transfer, consistent with evidence on succession planning schedules. The effect is concentrated in small and young firms, while, at the same time, similarly present across sectors and regions. Our findings suggest that employment preservation clauses mitigate firm dynamics.

Do tax loss provisions distort venture capital funding of start-ups? ZEW Discussion Paper No. 21-008

I analyze whether anti-tax loss trafficking rules affect the funding of start-ups in Europe. I base my empirical analysis on a panel of VC-funded companies in the EU28 Member States from 1999 to 2014. These regulations disallow the use of loss carry-forwards after a substan-tial change in ownership or activity. This restriction could threaten accumulated loss carry-forwards of start-ups. Accounting for the increased risk and reduced return on their invest-ment, venture capital (VC) investors could reduce their funding. My findings suggest that strict anti-tax loss trafficking rules indeed impair VC funding. Especially companies in high-tech industries are affected.

Tax competition: Quo vadis? Trends and effects on family businesses. ZEW Discussion Paper No. 23-027; with K. Nicolay, C. Spengel & S. Wickel 

This study provides an overview of current political developments in tax competition, emphasizing the consequences for large family businesses. We analyse new tax competition trends in Europe and selected industrialized countries in recent years. Subsequently, we discuss various international tax policy counter-reactions, namely the EU Anti-Tax Avoidance Directive, country-by-country reporting and the OECD’s two-pillar project, with respect to their impact on tax competition. We outline a potential shift in tax competition away from companies towards highly wealthy and highly qualified individuals. The implications of these developments on large family businesses are exemplarily shown for Germany, a country with a large share of .family businesses