Tax Policy, Financial Frictions, and Firm Risk-Taking: Spyridon Gkikopoulos

Event Date: 18 February 2026

Speaker: Spyridon Gkikopoulos, University of Manchester

Venue: CW404b, Cathedral Wing, Strathclyde Business School

Time: 2pm

Abstract:

We examine whether bonus depreciation provisions influence firms’ investment risk decisions. We analytically show that these provisions generate tax shields that reduce reliance on costly external finance, thereby encouraging risk-taking. Using quasi-experimental variation in accelerated depreciation schedules created by U.S. bonus depreciation, we find that firms respond with greater investment risk. Consistent with our model’s mechanism, the effect is concentrated among financially constrained firms. Moreover, the salience of bonus depreciation tax shields increases with the tax rate, so we observe that the mechanism is most pronounced among constrained firms facing high marginal effective tax rates. Robustness analyses, including event study and placebo designs, support the identification strategy. Overall, the findings highlight the role of bonus depreciation in shaping firms’ risk preferences and inform policy debates on the effectiveness of tax provisions aimed at supporting firms in adverse macroeconomic conditions.

Published: 25 February 2026