NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Luo Zuo

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Working Papers

December 2015Sharing Risk with the Government: How Taxes Affect Corporate Risk-Taking
with Alexander Ljungqvist, Liandong Zhang: w21834
Using a natural experiment in the form of 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 wi...
November 2011Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Styles
with Antoinette Schoar: w17590
Economic conditions when CEOs enter the labor market have a lasting impact on their career paths and managerial styles. Managers who begin their careers during a recession become CEOs more quickly, but at smaller firms. Recession CEOs also display a more conservative style, with less investment in capex and R&D, more cost cutting, and lower leverage, working capital needs, sales growth, and stock return volatility. The career effects appear to be driven by differences in these CEOs’ first jobs, and suggest that the early work environment is important to the formation and selection of managers.

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