Three essays on taxation and corporate finance: evidence from Japan
type: CreativeWork
description: We address three topics on the relationship between taxation and corporate decision-making. A feature of our study is that we use natural experiments in Japan for identification as well as unique data sets of Japanese corporations. This research framework allows us to provide new evidence for several research questions that are difficult to be studied under the tax systems or with data sets in other countries such as in the U.S. The first chapter examine the relationship between corporate tax asymmetries and high-risk investments. Economic theory dating to Domar and Musgrave (1944) suggests that the tax treatment of gains and losses can affect firms’ incentives to undertake high-risk investments. We take advantages of a 2002 tax reform in Japan as a natural experiment to test the theory. This tax reform introduced a consolidated taxation system (CTS). The CTS allows business groups to offset gains with losses across firms in the business groups. Thus, the CTS can mitigate disincentives in high-risk investments. We construct measures of investment risk using information on R&D. We estimate dynamic investment models with unique panel data of Japanese firms between 1994 and 2012. For identification, we use an IV strategy in a difference-in-differences framework or in a triple-differences framework. We provide evidence that the CTS increases R&D in line with Domar and Musgrave (1944). This finding suggests that mitigating tax asymmetries is an effective way to help encourage risk-taking. We also find evidence that the CTS encourages risk-sharing in business groups. These findings suggest that the asymmetries in the tax code have particularly important implications in countries where business groups are the prevailing organizational structures, because mitigating the tax asymmetries help encourage both risk-taking and risk-sharing. The second chapter examines the relationship between stock market listing and corporate tax aggressiveness. Recent literature argues that age…
abstract: We address three topics on the relationship between taxation and corporate decision-making. A feature of our study is that we use natural experiments in Japan for identification as well as unique data sets of Japanese corporations. This research framework allows us to provide new evidence for several research questions that are difficult to be studied under the tax systems or with data sets in other countries such as in the U.S. The first chapter examine the relationship between corporate tax asymmetries and high-risk investments. Economic theory dating to Domar and Musgrave (1944) suggests that the tax treatment of gains and losses can affect firms’ incentives to undertake high-risk investments. We take advantages of a 2002 tax reform in Japan as a natural experiment to test the theory. This tax reform introduced a consolidated taxation system (CTS). The CTS allows business groups to offset gains with losses across firms in the business groups. Thus, the CTS can mitigate disincentives in high-risk investments. We construct measures of investment risk using information on R&D. We estimate dynamic investment models with unique panel data of Japanese firms between 1994 and 2012. For identification, we use an IV strategy in a difference-in-differences framework or in a triple-differences framework. We provide evidence that the CTS increases R&D in line with Domar and Musgrave (1944). This finding suggests that mitigating tax asymmetries is an effective way to help encourage risk-taking. We also find evidence that the CTS encourages risk-sharing in business groups. These findings suggest that the asymmetries in the tax code have particularly important implications in countries where business groups are the prevailing organizational structures, because mitigating the tax asymmetries help encourage both risk-taking and risk-sharing. The second chapter examines the relationship between stock market listing and corporate tax aggressiveness. Recent literature argues that age…
author: Orihara, Masanori
language: en
keywords: Taxation, Corporate Finance
date published: 2016-03-02T20:23:50Z
date modified: 2026-07-22T22:26:32Z
provider: University of Illinois - Urbana-Champaign
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: University of Illinois at Urbana-Champaign

PropertyValue
property ID: Handle
value: http://hdl.handle.net/2142/89131