Corporate Finance
Lightning Round SessionSunday, Jan. 3, 2027 8:00 AM - 10:00 AM (EST)
- Chair: Rohan Williamson, Georgetown University
Corporate Profit Taxes and Investment Under Heterogeneous Credit Supply
Abstract
This paper studies how corporate profit taxes affect firm investment when credit supply is heterogeneous across firms. While corporate taxes are typically expected to affect investment through user cost channels, their effects may also depend on firms’ access to external finance. I combine local variation in corporate tax rates with firm-level balance sheet data and loan-level credit register information to estimate how tax changes affect investment and borrowing conditions. A corporate tax increase reduces tangible investment over the following years, with the response driven primarily by firms facing tighter financial constraints, such as firms with high leverage or high debt servicing costs, while financially unconstrained firms adjust investment only weakly. Loan-level evidence shows that tax increases raise borrowing costs and increase measured default risk, especially for ex-ante riskier firms. Loan volumes do not change significantly on average, but lending declines for riskier firms and borrowing costs increase more strongly for these firms, indicating that tax increases tighten financing conditions through creditors’ reassessment of firms’ repayment capacity. This evidence points to a credit supply channel through which corporate taxes affect investment. To assess whether these mechanisms matter at the aggregate level, I compile a new narrative dataset of corporate tax changes and study investment responses conditional on credit conditions. Corporate tax increases reduce aggregate investment modestly when credit conditions are loose but substantially more when lending conditions tighten. Taken together, the results suggest that financial constraints act as an amplification mechanism for corporate tax shocks, highlighting the role of credit supply conditions in the transmission of corporate taxation to investment.Data Privacy Regulation, Compliance Costs and Startup Growth Rates
Abstract
How does data privacy regulation affect high-growth entrepreneurship? I study the impact of the EU's General Data Protection Regulation (GDPR) on high-growth data-intensive (HGDI) startups using employment data from Revelio Labs (LinkedIn data) covering nearly ten million job spells across the EU and US.I show that startups based in the EU hire more compliance staff after the announcement and implementation of GDPR. I show that this effect is concentrated in data-intensive startups, with no effect for non-data-intensive startups. I also show that prior to GDPR, the share of compliance staff developed in a similar way in the EU and the US. This suggests that GDPR imposes a real compliance cost on innovative EU startups, and that this cost explains up to 20% of the "compliance gap" between EU and US startups (the difference in the share of workers working in compliance).
I then show that GDPR was associated with fewer startups and lower startup growth rates, and this effect is concentrated in data-intensive-sectors. The gap is substantial, with US-based data-intensive startups being almost twice as likely to reach key employment milestones (such as 100 employment spells, 200 employment spells and 300 employment spells) as EU-based ones after GDPR. While other factors may affect this, I show that the share of employees in compliance is directly negatively associated with firm growth.
Finally, analysing job descriptions, I show that EU-based workers are more likely to report performing compliance-related roles, even when holding role fixed (i.e. comparing programmers to programmers).
Fraud Culture
Abstract
We develop a measure of the culture of fraud. The measure is constructed using machinelearning to predict security class action lawsuits based on eight dimensions of corporate
culture—adaptability, community, customer-oriented, detail-oriented, integrity, openness,
results-oriented, and teamwork—computed from the text of employee reviews. The fraud
culture measure combines dimensions of corporate culture in the most predictive way
with the accuracy exceeding the predictive ability of firm size, growth, and profitability.
Fraud culture mostly varies with openness, adaptability, and the extent to which culture is
customer- and detail-oriented. Fraud culture is stable over time, although it has temporarily
declined around the implementation of the Dodd-Frank Act. Fraud culture is slow to
change. For CEO turnover, the potential for change is muted by matching; thereby CEOs
join firms with the culture similar to their previous firm.
Innovation Failure and CEO Compensation Packages
Abstract
The declared purpose of innovation is to develop new products or process enhancements that have not yet been developed. As a result, there is a growing need to understand the consequences of corporate innovation activities with a more comprehensive view. In contrast to existing research on corporate innovation, we use novel data to document a failure gap in corporate innovation. We develop a new measure of innovation failures and examine their effects on chief executive officers’ (CEOs’) compensation packages. We provide evidence that unsuccessful innovation outcomes are followed by significant reductions in CEOs' short-term incentives (jointly and separately) and long-term incentives, "stock-based compensation." These findings suggest that boards price downside innovation risk in executive contracts by adjusting incentive pay following unsuccessful innovative outcomes. Moreover, these compensation adjustments have real effects on firm behavior, leading to a significant decline in firms’ subsequent R&D investment. We also document that CEO turnover increases following innovation outputs: 24% of CEOs (95 out of 401) depart after innovation shortfalls, substantially higher than the average U.S. CEO turnover rate of 10%–13% over 2000–2020. We further examine whether failures in innovation output are systematically associated with CEO turnover after controlling for firm performance and other characteristics. We find no statistically significant association between unsuccessful innovation and CEO turnover in multivariate analyses. Taken together, the results suggest that boards address downside innovation risk primarily through incentive adjustments rather than CEO replacement, which appears to be driven by broader firm-wide conditions, consistent with a contracting response instead of a pure disciplinary mechanism.Note that this is not a call for U.S. firms to avoid innovation activity; rather, it highlights the importance of considering the implications of innovation failures.
The Anatomy of Shareholder Proposals
Abstract
Modern corporations delegate control to professional managers, creating agency frictions between managers and shareholders. Shareholders can address these frictions through proposal filings under SEC Rule 14a-8, but such proposals may either discipline managers or constrain informed managerial decision-making, leaving the net value of investor voice unresolved. We study the financial implications of contested proposals—cases in which management seeks to exclude a proposal and the stakes of shareholder intervention are highest. To identify causal effects, we introduce a judge-leniency design that exploits the quasi-random assignment of omission (No-Action) requests to SEC staff attorneys whose discretionary rulings determine whether contested proposals appear on the ballot. Using 20 research assistants to hand-collect data on all 5,031 No-Action requests from 2007–2024, we estimate filing and announcement effects. Contested governance proposals generate returns statistically indistinguishable from zero, suggesting that shareholders balance the benefits of oversight against the costs of limiting managerial discretion even when management objects. In contrast, social and environmental proposals produce negative filing effects, consistent with implementation costs under shareholder direction. However, the announcement of environmental proposals is associated with moderately positive returns, suggesting that markets may value the signaling or information they reveal, even when their implementation appears costly.Tolerance for Failure: Evidence from Patent Examination
Abstract
We introduce a novel firm-level measure of failure tolerance based on firms' patenting histories. Specifically, we quantify failure tolerance as the largest scope loss during patent examination that does not terminate a firm's innovation sequence. Our results show that firms with greater failure tolerance tend to produce patents that are more valuable, more cited, more complex, yet also more likely to fail. At the same time, they file fewer patents and employ fewer inventors. The reduction in innovation quantity largely offsets the increase in quality, resulting in an ambiguous relationship between failure tolerance and total innovation output. Exploiting inventor job switches, we provide causal evidence that higher failure tolerance enhances inventor productivity. Taken together, our findings establish failure tolerance as a powerful incentive mechanism but also highlight its overlooked costs.Him Too? Analyzing the Effects of Epstein Connections
Abstract
The January 30, 2026 release of the Epstein files by the U.S. Department of Justice (DOJ) brought unprecedented public scrutiny to the network of individuals connected to Jeffrey Epstein, a convicted sex offender whose social circle extended across finance, technology, academia, politics, and entertainment. While the central harm in this case was borne by Epstein's victims, the files create a distinctive opportunity to study a narrower set of corporate finance questions: how extensively did Epstein's network penetrate the leadership of America's largest public companies, and did those connections have measurable consequences for firm value and corporate conduct?We construct a comprehensive sample of all S&P 500 CEOs and board members serving between 2006 and 2026---52,266 unique individuals---and search the 1,293,753 text-bearing documents for evidence of their contact with Jeffrey Epstein. Using large language model (LLM) classification of 117,394 matched correspondences, we identify 67,637 that indicate direct contact with 1,179 S&P 500 CEOs or directors. We then document three main findings. First, firms whose CEOs or board members appeared in Epstein-related news coverage experienced significantly negative cumulative abnormal returns of up to -3.7% over a three-day window following the January 30, 2026 DOJ release. Second, adding Epstein-mediated ties to the firm network increases overall density and reduces average path lengths significantly, meaning that Epstein effectively wired corporate America into a denser, more tightly interconnected governance network than would have existed otherwise. Third, we show that Epstein's network transmitted norm contagion through shared board connections. Firms with more Epstein-connected CEOs or directors exhibit significantly worse ESG outcomes: each additional connection is associated with approximately 2.3 more annual governance incidents and 4.0 more total incidents.
Unexpected Corporate Bond Demand and Firm Acquisition Activity
Abstract
In March 2020, the Federal Reserve’s Corporate Credit Facilities abruptly lowered effective bond financing costs for investment-grade rated firms. We ask whether this shock increased cash acquisitions following bond issuance for the treated firms. We assemble firm-level Compustat–CRSP–FISD–SDC data from 2017–2023 and estimate a triple difference-indifferences specification exploiting IG status, the treatment period of 2020, and the numberof bonds issued. For IG firms that issued in 2020, the probability of announcing a cash acquisition did not significantly differ from that of non-IG firms who issued in the same period. However, announcement cumulative abnormal returns for these treated acquisitions were higher than those announced by non-IG issuers, consistent with more selective dealmaking rather than a collapse in acquisition activity.
Time to Innovate
Abstract
We study whether shorter workweeks hinder or help innovation. Korea’s 2018 52-hour workweek reform lowered the legal maximum from 68 to 52 hours and was phased in at a 300-employee cutoff. Using a regression discontinuity design, we compare otherwise similar establishments just above and below the threshold. The reform immediately reduced weekly hours by about 2-3 hours, mainly by eliminating regular weekend work. We find no economy-wide innovation response. Instead, gains are concentrated in light manufacturing, where innovation is especially employee-driven: treated establishments show substantially higher capitalized intellectual property by the end of 2019. No comparable increase appears in sectors where innovation relies less on broad labor input. Shorter hours do not seem to harm operations: output, profitability, employment, indirect hiring, fixed assets, and R&D remain little changed. Cross-sectional evidence supports a mechanism based on leisure complementing creativity. Innovation gains are larger where firms tolerate short-run failure and reward skill acquisition, and smaller where flexible hours or days already give workers similar slack. The effects are also stronger in establishments with older workforces, consistent with structural inertia rather than agency conflicts as an explanation for pre-reform overwork. The results suggest that in long-hours economies, time away from work can be a productive input into innovation.JEL Classifications
- G3 - Corporate Finance and Governance