How Does Tax Policy Influence Corporate Behavior? Evidence from the Restaurant Industry
Abstract
This study examines the influence of tax policy on corporate behavior. Changes in tax policy can provide cash windfalls to firms in the form of cash tax savings. However, identifying a setting with a tax-related cash windfall that is distinct from other tax policy changes is difficult. I exploit a unique natural experiment and examine whether the implementation of the Tip Credit in the restaurant industry influenced corporate investment and payout behavior.
I find that Tip Credit firms increased investment and were more likely to increase payout to shareholders following the implementation of the credit, relative to control firms. I also find that firms increased payout in the form of repurchases. Further analysis suggests that the relation between the implementation of the Tip Credit and firm behavior varies with firm financial constraints. Overall, these findings suggest that tax policy changes can have an important impact on business decisions.
Subject
Corporate Tax PolicyTax Credits
Investment
Payout Policy
Cash Windfall
Financial Constraints
Citation
Rane, Scott Gregory (2019). How Does Tax Policy Influence Corporate Behavior? Evidence from the Restaurant Industry. Doctoral dissertation, Texas A&M University. Available electronically from https : / /hdl .handle .net /1969 .1 /189166.