Research

This study investigates the real effects of major offshore data leaks on private firms. By matching leaked data with firm-level information, we identify a large sample of small private firms involved in offshore activities in tax havens and analyze their corporate policies. Employing the sequence of leaks in a staggered difference-in-difference design, we observe that exposed firms invest more in fixed assets and labor pre-leaks but then significantly decrease their investments after the leaks. Our cross-sectional analyses show that unproductive firms and firms with faster deduction of investment expenditures benefit the most from offshore tax evasion before the leaks. The leaks also reduced corporate taxation, an effect that is not driven by fewer sales. Overall, our results suggest that offshore tax evasion boosts domestic investment among less productive firms, an effect that is muted or even reversed after the leaks.

We investigate the optimal delegation of corporate tax strategy. We develop a dynamic model that incorporates moral hazard and random inspections by tax authorities. The firm's owner cannot directly observe either the firm's underlying gross profits process or the agent's continuous efforts to reduce tax expenses. Inspections are random, and while illegal strategies can be detected and penalized, the extent of evasion remains unobservable. In our setting, a risk-averse owner may avoid contracting tax strategies if the agent's effort costs or underlying profit volatility are too high, providing a contractual explanation for under-sheltering. The optimal tax strategy is a constant under-reporting of profits over time, which becomes more aggressive when the agent is less risk-averse and corporate tax rates are higher. The optimal compensation includes a fixed salary to ensure the agent's participation and a performance-based component that increases with the agent's risk aversion and the reported profits. Under inspection risk, however, the optimal tax strategy is not constant and becomes progressively less aggressive as the expected penalty rises over time. The agent's compensation includes an additional risk premium by bearing the inspection risk and a contingent loss in case of detection.

Energy policy uncertainty - as measured by uncertainty about a U.S. President signing an energy related executive order in the future - covaries positively with corporate investment and aggregate consumption growth, and its innovations carry a negative price of risk. I propose and test a q-theory explanation in which firms invest in energy-efficient capital when facing energy policy uncertainty. This uncertainty amplifies differences in investment between growth and value companies as the benefits of substituting energy for capital increase with growth opportunities. As the benefits to invest increase, aggregate current consumption decreases relative to future consumption, creating time varying expected variation in aggregate market returns and consumption growth. Without an investment factor, uncertainty betas explain cross-sectional variation in stock returns across portfolios that differ in their growth opportunities. However, since investment reacts to uncertainty endogenously, an asset pricing model that accounts for an investment factor absorbs the cross-sectional differences in expected returns explained by this policy uncertainty. My findings suggest that uncertainty about future energy policies in the last four decades can explain firms' adoption of energy-efficient capital.

In this paper, we develop a dynamic agency model to examine how profitability shocks, labor market frictions, and compensation design interact. Our framework integrates a competitive labor market with search costs and analyzes the optimal contract under positive profitability shocks. Rewarding profitability shocks is optimal only when a firm's search costs include a component proportional to its value, as replacing the agent entails a partial loss of firm value. In a competitive labor market, such rewards help maintain incentives for continued employment and adjust compensation to reflect changes in the agent's market value. We further show that this effect is stronger when shocks are systemic rather than idiosyncratic, as only systemic shocks increase the agent's outside option, requiring larger adjustments for retention. This challenges the conventional wisdom of RPE-based compensation, which ties rewards to relative performance rather than changes in outside options.