Pflitsch, Max 
ORCID: 0000-0001-8993-9396
(2022).
Essays on the Expected and Unexpected Effects of a Major Tax Reform.
PhD thesis, Universität zu Köln.
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Abstract
This thesis aims at improving the understanding of the effects of tax legislation on firms and firm behavior. To this end, this thesis utilizes some of the key provisions of the far-reaching tax reform in the U.S. of 2017, commonly referred to as the ‘Tax Cuts and Jobs Act’ [TCJA]. In particular, this thesis examines whether and how the TCJA affects firms in foreign countries, how it affects the tax avoidance behavior of U.S. firms with respect to intertemporal and cross-jurisdictional profit shifting, and how the TCJA affects agency conflicts between the investors and managers of U.S. firms in case of M&A activities. Chapter 2 examines through which channels tax legislation can affect firms in foreign countries. While prior research has focused mostly on the effects of tax legislation changes on firms in the country the tax legislation is implemented, we provide novel evidence that tax reforms also affect firms in foreign countries. Utilizing an event study, we examine stock returns around key dates of the legislative process of the TCJA. We find that the TCJA affected stock market returns of European firms. The TCJA affects European firms through two major channels. Fist, firms that operate to some extend in the U.S. benefit from the TCJA. Second, European firms are indirectly affected through changes in their relative global competitiveness. Chapter 3 provides insights into the behavioral response of firms if they face changes in tax rates across different periods. We show that firms exploit tax rate changes through intertemporal income shifting, i.e. shifting taxable income to years with a lower corporate income tax rate. Furthermore, we show that due to the financial reporting costs of reducing income in high tax periods, firms engage in additional manipulations affecting financial accounting income. Overall, our findings suggest that policy makers should carefully weigh the consequences of tax rate decreases and incorporate the revenue effects of intertemporal income shifting in their calculations. Chapter 4 examines a novel anti-tax avoidance legislation enacted through the TCJA called ‘Global Intangible Low Tax Income’ [GILTI]. This rule aims at reducing the incentive to generate low tax burdens through cross-border tax avoidance. We examine the M&A activity of U.S. acquirers before and after the TCJA depending on whether they are potentially affected by the GILTI provision. Our findings suggest that GILTI effectively deters low-tax and tax haven investments by U.S. firms. This finding is of particular interest to policy makers, in particular since the Biden administration currently considers extending the GILTI provision extensively. Chapter 5 examines the effects of a global versus territorial tax system on agency conflicts between shareholders and managers. The TCJA changes the tax system to a territorial system by abolishing the former repatriation tax. Prior literature suggests that the repatriation tax prior to the TCJA resulted in agency conflicts and excessive foreign acquisitions. Therefore, acquisition decisions after the abolishment of the repatriation tax post TCJA might more closely align with the investor perspective. However, examining investor reactions to cross-border acquisition announcements, I provide evidence that agency conflicts prevail post TCJA. More precisely, investors react more negatively to respective announcements after the TCJA. This suggests that the abolishment of the repatriation tax did not resolve agency conflicts between investors and managers.
| Item Type: | Thesis (PhD thesis) | ||||||||
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| URN: | urn:nbn:de:hbz:38-633451 | ||||||||
| Date: | 2022 | ||||||||
| Language: | English | ||||||||
| Faculty: | Faculty of Management, Economy and Social Sciences | ||||||||
| Divisions: | Faculty of Management, Economics and Social Sciences > Business Administration > Accounting and Taxation > Professorship for Business Administration and Business Taxation | ||||||||
| Subjects: | Economics Management and auxiliary services |
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| Date of oral exam: | 15 September 2022 | ||||||||
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| Refereed: | Yes | ||||||||
| URI: | http://kups.ub.uni-koeln.de/id/eprint/63345 |
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