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• Article | Management Science | November 2020

  The Role of Taxes in the Disconnect Between Corporate Performance and Economic Growth

  Urooj Khan, Suresh Nallareddy and Ethan Rouen

  We investigate the relation between the growth in corporate profits and the overall U.S. economy, focusing on the impact of the U.S. corporate tax regime on this relation. We document that the growth of corporate profits, on average, has outpaced the growth of the economy, and this disconnect increases as the difference between the corporate income tax rate of the U.S. and the other OECD countries increases. The underlying mechanism is fewer corporate profits being channeled into subsequent domestic investments when the U.S. tax rate is relatively higher, leading to lower economic growth. Our findings have implications for policy setters.

  Keywords: taxes; gdp; Corporate profits; American jobs creation Act of 2004; Taxation; Economic Growth; Profit; United States;

  Citation:

  Khan, Urooj, Suresh Nallareddy, and Ethan Rouen. "The Role of Taxes in the Disconnect Between Corporate Performance and Economic Growth." Management Science 66, no. 11 (November 2020): 5427–5447.  View Details

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• Working Paper | HBS Working Paper Series | 2020

  The Stock Market Value of Human Capital Creation

  Matthias Regier and Ethan Rouen

  We develop measures of firm-level human capital creation from publicly disclosed personnel expenses (PE) and examine the stock market valuation of these characteristics. Separately measuring human capital creation efficacy and opportunity, we first show that efficacy is positively associated with characteristics of human-capital-intensive firms and employee productivity growth. Next, we find that efficacy has a positive pricing coefficient, implying that the market recognizes some of its variation. In our main analysis, long-short portfolios based on the human capital creation efficacy (opportunity) produce annualized abnormal returns of 4.0 to 5.4% (6.0 to 7.5%). Portfolios formed on the combination of efficacy and opportunities produce the strongest abnormal returns of 6.3 to 9.3% in annualized terms. Our results provide evidence of the importance to valuation of accurate human capital measurement.

  Keywords: intangibles; market valuation; Human Capital; Stocks; Financial Markets; Valuation;

  Citation:

  Regier, Matthias, and Ethan Rouen. "The Stock Market Value of Human Capital Creation." Harvard Business School Working Paper, No. 20-047, October 2020.  View Details

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• Background Note | HBS Case Collection | December 2019 (Revised October 2020)

  Income Inequity and Income Inequality

  Ethan Rouen and Akari Furukawa

  This research note provides an understanding of income inequity, which is a component of broader income inequality. It begins by describing the difference between inequality and inequity before examining inequity within the workplace. Using the firm as the unit of analysis, the note discusses possible causes of inequity and the challenges of identifying and measuring inequity. It concludes by focusing on attempts to address inequity and discussing academic research that examines the impact of addressing inequity.

  Keywords: income inequity; Income; Equality and Inequality;

  Citation:

  Rouen, Ethan, and Akari Furukawa. "Income Inequity and Income Inequality." Harvard Business School Background Note 120-062, December 2019. (Revised October 2020.)  View Details

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