Financial constraints,access to capital,shareholder taxes,and firm investments.
文摘
This dissertation consists of two essays that examine the relationship between the capital market and corporate decisions such as capital investments and labor employment in the setting of a shareholder tax cut. The first essay is based on a working paper with Professor Zhonglan Dai,Douglas Shackelford,and Harold Zhang. Using two most recent major shareholder taxes cuts,Taxpayer Relief Act TRA) of 1997 and the Jobs and Growth Tax Relief Reconciliation Act JGTRRA) of 2003,as events of study,we find that less financially constrained firms show larger increases in investment and employment than more financially constrained firms when shareholder taxes are reduced. Our findings identify an interesting paradox in that firms benefited more from shareholder taxes cut in their cost of capital as documented in existing literature) increases less in their investment and employment. The second essay extends the first essay and takes into account the supply side of capital. It shows that in addition to firms financial constraints,their access to external capital has an additional effect on their responses to a tax cut on investment income. More specifically,the increase in investment and employment after such a tax cut is more dramatic for firms facing better access to external capital. In addition,I find that this difference is even stronger when financial constraints and access to external capital are interacted. In other words,firms facing less financial constraints and having better access to external capital are the ones that are most responsive to a shareholder tax cut. In summary,this dissertation explores the direct effect of shareholder tax cuts on firms investment and employment for firms facing different financial constraint and access to external capital. It sheds light on the potential impact on firms investment and employment of raising shareholder taxes when the extension of JGTRRA ends.