Ethan Rouen is an assistant professor of business administration in the Accounting and Management Unit, teaching financial reporting and control to MBA students.
Contemporary issues in disclosure and regulation, in particular the intersection of financial reporting with firm-level labor decisions, are at the center of Professor Rouen’s research. In 2018, he was awarded the Best Dissertation Award from the Financial Accounting and Reporting Section of the American Accounting Association. In 2017, he was awarded the Deloitte Foundation Wildman Medal from the American Accounting Association for recent research that has had the greatest impact on the practice of accounting. His research has been published in Review of Accounting Studies, and his journalism and opinion articles have appeared in the Boston Globe,CEOWORLD Magazine, and Fortune.com, among others.
Professor Rouen earned a BA in history and English from the University of Wisconsin-Madison, and an MS in journalism at Columbia University Graduate School of Journalism. From Columbia Business School, he received an MBA in finance and accounting, an M.Phil. in accounting, and a PhD in accounting.
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.
Khan, Urooj, Suresh Nallareddy, and Ethan Rouen. "The Role of Taxes in the Disconnect Between Corporate Performance and Economic Growth." Management Science (forthcoming).
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I develop measures of firm-level pay disparity and examine their relation to firm performance. Using comprehensive compensation data for a large sample of firms, I find no statistically significant relation between the ratio of CEO-to-mean employee compensation and performance. I next create empirical models that allow me to separate the components of CEO and employee compensation explained by economic factors from those that are not and use these models to estimate explained and unexplained pay disparity. After validating my estimate of unexplained pay disparity as a proxy for pay fairness, I find robust evidence of a negative (positive) relation between unexplained (explained) pay disparity and future firm performance.
Suresh Nallareddy, Ethan Rouen and Juan Carlos Suárez Serrato
This paper studies the effects of corporate tax changes on income inequality. Using state corporate tax rate changes as a setting, we show that cutting state corporate tax rates leads to increases in income inequality. This result is robust to using regression and matching approaches, and to controlling for a host of potential confounders. Contrary to the effects of tax cuts, we find no effects of tax increases on income inequality at the state level. We then use data from the IRS Statistics of Income to explore the mechanism behind the rise in income inequality. We find tax cuts lead to higher reported capital income and a decrease in wage and salary income. These effects are concentrated among top earners, and we find no effects for those reporting less than $200,000 in income. This result provides evidence that one mechanism for the relation between tax cuts and inequality is that wealthy individuals shift their income to reduce taxes while others do not. Finally, we explore the effects of corporate tax cuts on capital investment using data from the Annual Survey of Manufactures. We find that tax cuts lead to an increase in real investment, suggesting a trade-off between investment and inequality at the state level. This paper studies the effects of corporate tax changes on income inequality. Using state corporate tax rate changes as a setting, we show that cutting state corporate tax rates leads to increases in income inequality. This result is robust to using regression and matching approaches, and to controlling for a host of potential confounders. Contrary to the effects of tax cuts, we find no effects of tax increases on income inequality at the state level. We then use data from the IRS Statistics of Income to explore the mechanism behind the rise in income inequality. We find tax cuts lead to higher reported capital income and a decrease in wage and salary income. These effects are concentrated among top earners, and we find no effects for those reporting less than $200,000 in income. This result provides evidence that one mechanism for the relation between tax cuts and inequality is that wealthy individuals shift their income to reduce taxes while others do not. Finally, we explore the effects of corporate tax cuts on capital investment using data from the Annual Survey of Manufactures. We find that tax cuts lead to an increase in real investment, suggesting a trade-off between investment and inequality at the state level.
This paper offers guidance and shares collective wisdom for accounting Ph.D. students who will be entering the academic job market. It is divided into two sections. The first offers subjective advice on the dissertation process—from choosing a topic to surviving the inevitable self-doubt—from my personal experience and the experiences of other former job candidates. The second section focuses mainly on factual components of the job market, providing details that will be useful to candidates before they begin the search. It concludes with subjective advice on how to make the job hunt more enjoyable. Both sections are organized chronologically and attempt to be comprehensive, beginning with choosing a dissertation topic and adviser, and concluding with the decision to accept an offer.
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.
I develop measures of firm-level pay disparity and examine their relation to firm accounting performance. Using comprehensive compensation data for a large sample of firms, I find no statistically significant relation between the ratio of CEO-to-mean employee compensation and performance. I next create empirical models that allow me to separate the components of CEO and employee compensation explained by economic factors from those that are not and use these models to estimate explained and unexplained pay disparity. After validating my estimate of unexplained pay disparity as a proxy for pay fairness, I find robust evidence of a negative (positive) relation between unexplained (explained) pay disparity and future firm performance. Additional tests show that the negative relation between unexplained disparity and firm performance is driven by firms where both the CEO is overpaid and employees are underpaid and is more pronounced for firms with weak corporate governance and high employee turnover.
Lord Hobo Brewing Company accounts for its inventory process at it prepares to create its first set of professional financial statements for investors.
Rouen, Ethan, and Suraj Srinivasan. "JOE & THE JUICE Crosses the Atlantic (with video links)." Harvard Business School Teaching Note 118-075, March 2018.
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As JOE & THE JUICE began its rapid U.S. expansion in 2017, its founder and CEO, Kaspar Basse, fretted about how he could keep his employees feeling like they were doing meaningful work. Founded in 2001, JOE & THE JUICE had always focused on making healthy juices, banning prepackaged or processed foods, and providing meaningful work for front-line food services employees. To instill employees with a sense of ownership, JOE & THE JUICE had developed a transparent promotion and compensation scheme, a rigid training program, and an explicit promise to promote only from within (the CFO was 31-years-old and had spent a decade working at the company). On the other hand, employees were encouraged to make the juice bars their homes. There were no required uniforms or scripts on how to interact with customers. This strategy had led to great success in Europe. In a decade, JOE & THE JUICE had spread across the continent and was immensely profitable. But as it moved into the United States and prepared for a potential IPO, the company began struggling to retain talent and worried about how it could successfully import its internal culture while maintaining its rapid growth.
