NBER Working Papers and Publications by Luo Zuo

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Working Papers and Chapters and Reporter Articles

December 2015Sharing Risk with the Government: How Taxes Affect Corporate Risk Taking
with Alexander Ljungqvist, Liandong Zhang: w21834
Using 113 staggered changes in corporate income tax rates across U.S. states, we provide evidence on how taxes affect corporate risk-taking decisions. Higher taxes reduce expected profits more for risky projects than for safe ones, as the government shares in a firm’s upside but not in its downside. Consistent with this prediction, we find that risk taking is sensitive to taxes, albeit asymmetrically: the average firm reduces risk in response to a tax increase (primarily by changing its operating cycle and reducing R&D risk) but does not respond to a tax cut. We trace the asymmetry back to constraints on risk taking imposed by creditors. Finally, tax loss-offset rules moderate firms’ sensitivity to taxes by allowing firms to partly share downside risk with the government.
November 2011Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Styles
with Antoinette Schoar: w17590
We show that economic conditions when managers enter the labor market have long-run effects on their career paths and managerial styles. Managers who began their careers during recessions become CEOs more quickly, but at smaller firms. They also have more conservative styles, such as lower investment in capital expenditures and research and development, more cost cutting, and lower leverage and working capital needs. These recession effects appear to be largely driven by the characteristics of the CEO’s first job (recession CEOs tend to start in smaller or private firms), which suggests that the early work environment is important to the formation and selection of managers.

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