Stephanie Sikes

Stephanie Sikes
  • Clarence Nickman Term Assistant Professor

Contact Information

  • office Address:

    1320 Steinberg Hall-Dietrich Hall
    3620 Locust Walk
    Philadelphia, PA 19104-6365

Research Interests: institutional investors, managerial reporting incentives, payout policy, taxation

Links: CV


Professor Sikes’ research interests include the effect of investor-level taxes on cost of capital, institutional investor trading, and asset prices, as well as the effect of corporate taxes on corporate decision-making and reporting. She has taught courses on financial accounting, financial statement analysis, and taxes and business strategy at both the undergraduate and graduate levels at the University of Pennsylvania, Duke University, and the University of Texas. She holds a PhD from the University of Texas, an MBA with a concentration in accounting from Tulane University, and a BA in political economy from Tulane University. Professor Sikes is a certified public accountant and prior to commencing the PhD program at the University of Texas, she was a senior associate in the federal business tax consulting group at Arthur Andersen LLP.

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  • Stephanie Sikes (Working), Capital Gains Lock-In and Share Repurchases.

    Abstract: I investigate how capital gains taxes affect the number of shares a firm repurchases. I predict that tax-sensitive investors’ reluctance to sell stocks in which they have unrealized capital gains (capital gains lock-in) reduces the supply of shares available in the market, and consequently raises the price at which a firm can repurchase its shares. Consistent with this hypothesis, I find that firms repurchase fewer shares the greater the unrealized capital gains of their tax-sensitive investors relative to those of their tax-insensitive investors. Moreover, firms with greater capital gains lock-in spend significantly more on capital expenditures and research and development, suggesting that firms experiencing capital gains lock-in substitute investments for repurchases. Finally, the negative effect of capital gains lock-in on share repurchases and the positive effect on investment are both stronger when the capital gains tax rate is higher.  

  • Luzi Hail, Stephanie Sikes, Clare Wang (2017), Cross-Country Evidence on the Relation between Capital Gains Taxes, Risk, and Expected Returns, Journal of Public Economics.

    Abstract: This study empirically examines the role of risk sharing between taxable investors and the government on the relation between capital gains taxes and expected returns. Specifically, using an international panel from 26 countries over the period 1990 to 2004, we find evidence that the general positive relation between capital gains taxes and expected returns becomes weaker or even reverses when (i) a firm’s systematic risk is high, (ii) the market risk premium is high, or (iii) the risk-free rate is low. The results are particularly pronounced in countries with substantive changes in tax rates, more trust in government institutions, less integrated and less liquid capital markets, and lower foreign institutional ownership as well as around substantive increases and decreases in the risk parameters. We corroborate our findings in a single country setting, using the 1978, 1997, and 2003 capital gains tax rate changes in the United States as events. Our results underscore the importance of macroeconomic and firm-specific factors in determining the effect of tax capitalization, and suggest that tax rate changes can sometimes have opposite valuation implications than what policymakers have in mind.

  • Leslie Robinson, Pavel Savor, Stephanie Sikes (Working), Value Relevance of Income Tax Expense Post FIN 48.

    Abstract: Using hand-collected data on the fraction of firms’ effective tax rates (ETRs) attributable to tax reserve changes, we examine how investors’ response to income tax expense changes after FIN 48 enactment. Consistent with investors viewing tax expense as value lost to taxes paid, in the pre-FIN 48 period we find that abnormal returns surrounding annual earnings announcements are negatively related to changes in firms’ ETRs and that abnormal returns surrounding 10-K filing dates are negatively related to the fraction of the ETR attributable to tax reserve changes. Following FIN 48 enactment, neither relation is statistically different from zero, suggesting that FIN 48 reduces the value relevance of income tax expense. However, the muted reaction is confined to firms for which we expect income tax expense to suffer the greatest decrease in value relevance, indicating that investors understand the differential impact of FIN 48 on tax reserve accruals.

  • Jennifer Blouin, Brian Bushee, Stephanie Sikes (Forthcoming), Measuring Tax-Sensitive Institutional Ownership.

    Abstract: We classify all institutional investors that file Form 13F over the period 1995–2013 as either “tax-sensitive” or “tax-insensitive” based on their trading behavior and portfolio characteristics. We examine tests of the effects of investor tax-sensitivity on portfolio rebalancing, price pressure, and fund performance, and compare our measure of tax-sensitive institutional investor ownership to three measures used in prior studies. We show that our measure of tax-sensitive investors dominates other measures in the portfolio rebalancing and price pressure tests. In the fund performance test, our measure of tax-sensitivity is the only one that finds that tax-sensitive investors have significantly lower returns on their portfolio stocks, which is a new result in the literature.

  • Stephanie Sikes and Robert E. Verrecchia (Under Revision), Aggregate Corporate Tax Avoidance and Cost of Capital.

    Abstract: We identify a pecuniary externality arising from corporate tax avoidance. As firms engage in more avoidance, the cost of capital increases for all firms. The intuition is that firms share risk with the government via taxation. The lower the tax rate applied to a firm’s earnings, the more risk is borne by its shareholders. As firms avoid more taxes in the aggregate, the variance of the market’s after-tax cash flow increases. Consequently, covariance risk, and thereby the cost of capital, increases for all firms. Consistent with our prediction, we find that firms’ implied cost of capital is positively related to aggregate corporate tax avoidance. This result holds for tax-avoiding and non-tax-avoiding firms, and is stronger for firms whose cash flow covaries more with the market cash flow. U.S. multinationals’ tax avoidance drives the pecuniary externality, consistent with only strategies that reduce a firm’s marginal tax rate on income reducing risk-sharing.

  • Stephanie Sikes and Robert E. Verrecchia (2015), Dividend Tax Capitalization and Liquidity, Review of Accounting Studies, 20 (4), pp. 1334-1372.

    Abstract: We provide a new explanation for cross-sectional variation in dividend tax capitalization. Our analysis is twofold. First, we conduct a theoretical analysis that shows that liquidity (illiquidity) mitigates (magnifies) the positive effect of dividend taxes on expected rates of return documented in prior literature. Second, we conduct an empirical analysis centered around the Jobs and Growth Tax Relief and Reconciliation Act of 2003, which reduced the difference between the maximum statutory dividend and capital gains tax rates, and find results consistent with our theory. We also provide results suggesting that institutional ownership’s mitigating effect on dividend tax capitalization documented in prior studies is attributable to stocks with greater institutional ownership being more liquid and not to the “marginal investor” being insensitive to dividend taxes.

  • Stephanie Sikes, Xiaoli Tian, Ryan Wilson (2014), Investors' Reaction to the Use of Poison Pills as a Tax Loss Preservation Tool, Journal of Accounting and Economics, 57 (2-3), pp. 132-148. 10.1016/j.jacceco.2014.02.002

    Abstract: The recent economic downturn resulted in firms generating significant tax losses, which they risked losing if they experienced an ownership change.  In response, a number of loss firms adopted poison pill plans. We document a significant negative market reaction to the announcement of 62 poison pill adoptions related to net operating losses (NOLs), suggesting that in general investors do not consider management’s claim that the pills are adopted to preserve a valuable tax asset to be credible. However, we find cross-sectional variation consistent with investors considering whether a pill is legitimately adopted to preserve the NOL or to entrench management. 

  • Stephanie Sikes (2014), The Turn-of-the-Year Effect and Tax-Loss-Selling by Institutional Investors, Journal of Accounting and Economics , 57 (1), pp. 22-42.

    Abstract: Prior studies attribute the turn-of-the-year effect whereby small capitalization stocks earn unusually high returns in early January to tax-loss-selling by individual investors and window-dressing by institutional investors.  My results suggest that a significant portion of the effect on turn-of-the-year returns that prior studies attribute to window-dressing is actually attributable to tax-loss-selling by institutional investors. Among small capitalization stocks, I find that institutional investors with strong tax incentives and weak window-dressing incentives realize significantly more losses in the fourth quarter than in the first three quarters of the calendar year, and that their fourth quarter realized losses have a significant impact on turn-of-the-year returns. A one percentage point change in these institutional investors’ fourth quarter realized losses scaled by a firm’s market capitalization results in an increase of 47 basis points in the firm’s average daily return over the first three trading days of January, which represents a 46 percent change for the mean firm.  

  • Stephanie Sikes and Robert E. Verrecchia (2012), Capital Gains Taxes and Expected Rates of Return, The Accounting Review, 87 (3), pp. 1067-1086.

    Abstract: Prior literature predicts a positive relation between firms' expected pre-tax rates of return and investor-level capital gains tax rates. We show that this relation is more nuanced than suggested by prior literature and that in three circumstances the relation can actually be negative. The first circumstance is when a firm's systematic risk is very high. The second circumstance is when the market risk premium is very high. The third circumstance is when the risk-free rate of return is very low. The circumstances arise because, in addition to reducing investors' expected after-tax cash proceeds, capital gains taxes reduce the risk that investors associate with the expected after-tax cash proceeds.

  • Jennifer Blouin, Cristi Gleason, Lillian Mills, Stephanie Sikes (2010), Pre-Empting Disclosure? Firms' Decisions Prior to FIN No. 48, The Accounting Review, (May): 791-815.

    Abstract: This study jointly evaluates firm-level changes in investor composition and shareholder distributions following a 2003 reduction in the dividend and capital gains tax rates for individuals. We find that directors and officers, but not other individual investors, rebalanced their portfolios to maximize after-tax returns in light of the new tax rules. We also find that firms adjusted their distribution policy (specifically, dividends versus share repurchases) in a manner consistent with the altered tax incentives for individual investors. To our knowledge, this is the first study to employ simultaneous equations to estimate both shareholder and managerial responses to the 2003 rate reductions. We find that the generalized method of moments (GMM) estimates are substantially stronger than OLS estimates, consistent with our expectation that investor and manager responses are simultaneously determined. Failure to estimate systems of equations may account for some of the weak and conflicting results from prior studies of the 2003 rate reductions.


Past Courses


    In the course, students learn how to analyze firms' financial statements and disclosures to determine how a firm's particular accounting choices reflect the underlying economics of the firm. As a result, the course strengthens students' ability to use financial statements as part of an overall assessment of the firm's strategy and valuation. The course is especially useful for anyone interested in working on the buy or sell side. The course provides both a framework for and the tools necessary to analyze financial statements. At the conceptual level, it emphasizes that preparers and users of financial statements have different objectives and incentives. At the same time, the course is applied and stresses the use of actual financial statements. For example, students learn how to detect when firms are managing earnings and/or balance sheets. It draws heavily on real business problems and uses cases to illustrate the application of the techniques and tools.


    The objective of this course is to develop a framework for understanding how taxes affect business decisions. The key themes of the framework - all parties, all taxes and all costs - are applied to decision contexts such as investments, compensation, organizational form, and mergers and acquisitions. The ultimate goal is to provide a new approach to thinking about taxes that will be valuable even as laws and governments change.


    The objective of this course is to develop a framework for understanding how taxes affect business decisions. Traditional finance and strategy courses do not consider the role of taxes. Similarly, traditional tax courses often ignore the richness of the decision context in which tax factors operate. The key themes of the framework - all parties, all taxes and all costs - are applied to decision contexts such as investments, compensation, organizational form, regulated industries, financial instruments, tax-sheltered investments, mergers and acquisitions, multinational, and multistate. The ultimate goal is to provide a new approach to thinking about taxes (and all forms of government intervention) that will be valuable even as laws and governments change.


    The course covers empirical research design and provides students with a perspective on historically important accounting research. Topics covered such as research on the time-series and cross-sectional properties of financial accounting measures, capital markets behavior, financial intermediaries, and international accounting research.


    The course covers empirical research design and provides students perspective on historically important accounting research. Topics covered such as research on the time-series and cross-sectional properties of financial accounting measures, capital markets behavior, financial intermediaries, and international accounting research. Topics covered may include corporate governance, executive compensation, debt contracting, accounting regulation, tax, and management accounting.

Awards and Honors

  • Wharton Dean’s Research Fund Grant, 2015-2017
  • Wharton Global Initiatives Research Program Grant, 2013-2014
  • Penn Wharton Public Policy Initiative Grant, 2013-2016
  • Clarence Nickman Term Assistant Professorship, 2011-2016
  • Wharton Dean’s Research Fund Grant, 2011-2013
  • Penn Undergraduate Research Mentoring Program Grant, 2011
  • University of Texas A.D. Hutchison Student Endowment Fellowship, 2007-2008
  • AAA/Deloitte/J. Michael Cook Doctoral Consortium Fellow, 2007
  • University of Texas Graduate Student Professional Development Award, 2006
  • Deloitte & Touche Foundation Doctoral Fellowship, 2005-2007
  • University of Texas David Bruton, Jr. Fellowship, 2005
  • University of Texas McCombs School of Business Doctoral Fellowship, 2004-2007
  • University of Texas Pre-Emptive Recruiting Fellowship, 2003-2004
  • Beta Gamma Sigma, 1999
  • Phi Beta Kappa, 1998
  • The Charles H. Murphy Prize in Political Economy, 1998
  • Louisiana Legislative Scholarship, 1994-1998

In the News


Latest Research

Stephanie Sikes (Working), Capital Gains Lock-In and Share Repurchases.
All Research

In the News

Capital Flight: Can Tax Inversions Be Prevented?
Knowledge@Wharton - 09/16/2014
All News

Awards and Honors

Wharton Dean’s Research Fund Grant 2015
All Awards