Energy Investment Tax Credits and Environmental Outcomes: Evidence from Electric Utilities with Jesse Chan (Boston University)
Abstract: The Investment Tax Credit (ITC) is intended to encourage investment in renewable energy. We study the association between ITC claims and U.S. electricity generation and emissions from electric utilities firms from 2001 to 2022 using a stacked cohort difference-in-differences design. We find that, after claiming the ITC, firms decrease total electricity generation, non-renewable electricity generation, and emissions as compared to peers that do not claim the credit. At the same time, ITC firms generate 7.9% more electricity from solar-powered sources in the next five years. Overall, our analyses suggest that the ITC encourages within-firm reallocation to solar generation and that its emissions benefits are achieved in part through decreases in electricity generation.
Customer Tax Uncertainty and Supplier Investment with Tzu-Ting Chiu (NHH-Norwegian School of Economics), Pete Lisowsky (Boston University), and Simone Traini (NHH-Norwegian School of Economics)
Abstract: This study examines the link between customer firms’ tax uncertainty and their supplier firms’ investment deviations. We find that customers’ tax uncertainty, proxied by current-year additions to the reserve for unrecognized tax benefits, is associated with an increased likelihood of underinvestment and a decreased likelihood of overinvestment by suppliers. Our underinvestment results in particular are more pronounced when suppliers (1) are more exposed to customers with greater credit risk and financial constraints, lower cash flows, and higher trade credit, and (2) have a higher share of total sales from their top customers, lower inventory turnover, and membership in the durable goods industries. These results are consistent with tax uncertainty exacerbating the holdup problem—suppliers underinvest in relationship-specific assets when they are concerned about risks associated with their customers’ tax uncertainty. Overall, our study provides evidence on the importance of tax uncertainty spillovers to key external stakeholders of the firm—suppliers.
Disclosure Oversight Under Constraints: Evidence from SEC Filing Reviews (based on dissertation)
Abstract: The Securities and Exchange Commission (“SEC”) faced Congressional budget pressure, leadership turnover, and a prolonged hiring freeze from 2017-2020. I examine how these shocks to the SEC’s operating environment affect disclosure oversight using the filing review process. During this period, the SEC issues fewer comment letters, reduces the scope of reviews, and reallocates attention toward the notes to the financial statements and away from other parts of the 10-K. Despite the decrease in coverage, I find that the SEC preserves error detection within the reviews it still performs. Consistent with a decline in information available to market participants and firms’ perceived oversight, I document increases in bid–ask spreads and accrual-based earnings management. Overall, my study suggests that operating constraints lead the SEC to substitute across oversight dimensions, preserving some detection capacity while reducing broader oversight coverage and information quality.
Tax Surprises with Erik Beardsley (University of Illinois), Michael Donohoe (University of Illinois) and Pete Lisowsky (Boston University)
Abstract: This study investigates internal corporate tax department performance evaluation, particularly the importance of minimizing tax surprises, using 25 semi-structured interviews with experienced tax professionals. We interpret our evidence through the lens of Expectancy Violation Theory (EVT). Participants generally define tax surprises as material differences between expected and actual tax outcomes, including cash taxes paid, tax audit results, and financial reporting effects, especially when the possibility of differences was not communicated to stakeholders. Consistent with EVT, even favorable surprises from material tax savings are undesirable because they undermine the competence and credibility of the internal tax function. Mitigating tax surprises involves investing in people, processes, and technology to better identify potential deviations, and improving cross-functional communication. Our findings show that corporate tax departments are evaluated not only on the tax outcomes they produce, but also on their ability to anticipate those outcomes and manage expectations surrounding them.
Green Signals Under Scrutiny: The Inflation Reduction Act and the Specificity of Corporate Operational Disclosure with Trent Krupa (Penn State University)
Abstract: We examine how the Inflation Reduction Act (IRA) affects firms’ operational disclosures related to clean energy tax credits. The IRA paired the largest expansion of clean energy tax credits in U.S. history with a targeted appropriation for IRS administration and enforcement. This policy architecture creates competing disclosure incentives: credits increase the value of transparent operational disclosure, while heightened enforcement raises the proprietary cost of providing it. Using event-study methods, we document significant positive cumulative abnormal returns for firms with preexisting clean energy credit positions around the IRA’s key legislative milestones. Using a difference-in-differences design, we then find that firms with disclosed pre-IRA clean energy credit activity reduce the specificity of their disclosure around activities that generate credits following the IRA. The decline is larger among firms facing greater IRS audit exposure. In contrast, firms more likely to benefit from external transfers of credits do not significantly reduce disclosure. Additional tests rule out greenwashing discipline as an alternative explanation. These findings reveal that enforcement-linked subsidy programs suppress voluntary operational disclosure valued by investors, revealing a potential cost of policy designs that pair tax incentives with increased regulatory scrutiny.