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Locked-in : the effect of CEOs' capital gains taxes on corporate risk-taking

Author(s)
Yost, Benjamin Peter
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Alternative title
Effect of Chief executive Officer's capital gains taxes on corporate risk-taking
Other Contributors
Sloan School of Management.
Advisor
John Core and Michelle Hanlon.
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MIT theses are protected by copyright. They may be viewed, downloaded, or printed from this source but further reproduction or distribution in any format is prohibited without written permission. http://dspace.mit.edu/handle/1721.1/7582
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Abstract
I study the effects of CEOs' unrealized capital gains tax liabilities (tax burdens) on corporate risk-taking. Recent work suggests that high tax burdens discourage CEOs from selling stock. I hypothesize that this causes the executives to become overexposed to firm-specific risk thereby reducing their willingness to make risky corporate decisions. In a series of tests, I find that corporate risk-taking decreases as CEOs' personal tax burdens increase. Further, firms with CEOs who are more locked-in to their stock positions (i.e., CEOs with higher tax burdens) experience larger increases in risk-taking following federal and state tax cuts. When I investigate the mechanism behind this relation, I find that tax cuts trigger stock sales by the locked-in executives, allowing for improved diversification. Overall, my findings indicate that the personal tax burdens of CEOs affect the firm by reducing executives' preferences for risk at the corporate level.
Description
Thesis: Ph. D., Massachusetts Institute of Technology, Sloan School of Management, 2017.
 
Cataloged from PDF version of thesis.
 
Includes bibliographical references (pages 43-47).
 
Date issued
2017
URI
http://hdl.handle.net/1721.1/112025
Department
Sloan School of Management
Publisher
Massachusetts Institute of Technology
Keywords
Sloan School of Management.

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