What Role Taxes and Regulation? A Second Look at Open Market Share Buyback Activity in the UK

This paper re-examines the evidence on open market share repurchase activity reported by Rau and Vermaelen (2002) for the UK. Using data from the Securities Data Corporation (SDC), Rau and Vermaelen conclude that the level of repurchase activity is trivial. They attribute the low repurchase volume to regulatory restrictions that limit companies' ability to take advantage of an undervalued stock price and conclude that the bulk of repurchase activity that does occur is driven by the desire to generate tax credits for pension funds. Using data collected from a variety of sources, we find that the SDC substantially understates UK open market buyback activity. Based on our more comprehensive dataset we conclude that (a) pension funds' tax considerations are not the primary cause of UK share repurchases and (b) despite the prevailing regulatory environment, underpricing still represents an important determinant of repurchase activity.     

Tax Law Improvement in Australia and the UK: The Need for a Strategy for Simplification

In both Australia and the UK, programmes are under way to simplify tax legislation by rewriting it. This paper demonstrates that tax simplification is a complicated concept and concludes that sustainable improvement is unlikely to be achieved if reform is limited only to linguistic changes. Tax law is complicated because there are powerful pressures that tend to increase the complexity of modern tax systems and these should also be considered in any simplification programme. In addition, tax simplification may be promoted by the greater use of purposive legislation — that is, legislation drafted in terms of general principles rather than much more comprehensive legislation designed to deal with every likely possibility. The paper examines the progress of the Australian Tax Law Improvement Project and argues that what is needed is a strategy for tax simplification that is incorporated into the process of generating tax policy itself. JEL classification: H20.     

Optimal bond trading with personal taxes

Tax considerations governing bondholders' optimal trading include: capital loss realization; capital gain deferment; change of the long-term holding period status to short-term by sale of the bond and repurchase, to realize future losses short-term; raising the basis above par by sale of the bond and repurchase, to deduct the amortized premium from ordinary income. The optimal policy which incorporates transactions costs and conforms to the IRS code substantially differs from the buy-and-hold and continuous-realization policies. Failure to account for optimal trading may seriously bias econometric estimation of the yield curve and the tax bracket of the marginal bondholders.     

刍议我国税收立法

本从市场经济对税收立法的要求入手，分析了目前我国转型时期税收立法存在的主要问题。提出了新时期应进一步重视和加强税收立法工作，提高税收立法质量的设想。     

Payout policy,taxes, and the relation between returns and the bid–ask spread

Recent evidence demonstrates that corporate payout policy has shifted from the nearly exclusive use of dividend payout to the inclusion of stock repurchase, primarily through open markets. This trend has been attributed to the tax advantages associated with repurchase relative to dividends. In this paper, we introduce personal taxation and stock repurchase to reexamine the relation between returns and the bid–ask spread. Our model provides insight into the nature of this relation. Tests performed using NYSE, AMEX, and NASDAQ data provide empirical support of our theoretical conclusions. We conclude that the firm’s choice of payout policy influences the relation between returns and spreads.     

Humpty Dumpty's guide to tax law: Rules,principles and certainty in taxation

Tax systems are, most commonly, rules-based. This gives the impression of techno-rationality in the interpretation of the numbers from which tax bills are derived. In fact, uncertainty and complexity in tax rules are seen as promoting tax avoidance behaviour, as avoiders exploit this complexity. Some authors have advocated that this can be combated by replacing rules-based tax legislation with principles-based legislation, giving tax authorities and the courts the power to interpret legislation purposively.This paper demonstrates by reference to a number of UK tax cases that rules-based legislation already embodies the hidden operation of state power as judges have considerable discretion in the interpretation of rules. The paper goes on to argue that principles-based legislation would further empower the state vis-à-vis the citizen. While this might be intuitively appealing to the vast majority of taxpayers not engaged in tax avoidance, it brings with it the hidden danger of a fundamental alteration of the balance of power between the state and all citizens, and should therefore be treated with caution.     

基于交易成本模型的中国税收授权立法研究

税收授权立法在我国税收法律体系中占据主导性地位。改革开放以来,税收授权立法对经济建设、社会发展做出了巨大贡献,同时也存在诸多问题,产生了一系列危害。通过构建我国税收授权立法交易成本模型,发现授权立法可降低立法成本,所引发的代理成本问题可由立法者的干预来解决。因此,我国应保留税收授权立法,并对其加强监督和约束。     

The Effects of Cash,Debt, and Insiders on Open Market Share Repurchases

The findings of the authors' recent study suggest, on balance, that stock repurchases function much like tax‐efficient special dividends, increasing when free cash flow is large and when debt levels are low, but not replacing regularly scheduled dividends. Repurchasing companies experience median event returns of about 2% around the repurchase announcements, with a related mean effect of roughly 3%. Companies with greater free cash flow and less debt are more likely than otherwise comparable companies to repurchase their shares. Furthermore, repurchasing companies that exhibit substandard preannouncement stock price returns and seek to buy back higher percentages of shares tend to elicit more positive stock price reactions. At the same time, the study provides some evidence that corporate managers attempt to use their inside information to profit from buybacks. For example, managing insiders in repurchasing firms decrease their selling activity and increase their buying activity two weeks before repurchase announcements to a greater extent than non‐managing insiders. But perhaps the most remarkable finding from this part of the study is how little insiders as a group seem to profit from their short‐term trading behavior—a finding that suggests that the market appears to anticipate much of this behavior.     

Earnings Management and Firm Performance Following Open-Market Repurchases

Both post‐repurchase abnormal returns and reported improvement in operating performance are driven, at least in part, by pre‐repurchase downward earnings management rather than genuine growth in profitability. The downward earnings management increases with both the percentage of the company that managers repurchase and CEO ownership. Pre‐repurchase abnormal accruals are also negatively associated with future performance, with the association driven mainly by those firms that report the largest income‐decreasing abnormal accruals. The study suggests that one reason firms experience post‐repurchase abnormal returns is that post‐repurchase realized earnings growth exceeds expectations formed on the basis of pre‐repurchase deflated earnings numbers.     

Investor protection,taxation, and dividends

We test the impact of taxes and governance systems on dividend payouts across countries. We show that, unlike previous studies, firms in strong investor protection countries pay lower cash dividends than in weak protection countries when the classical tax system is implemented, but they repurchase more shares to maximise their shareholders' after-tax returns. In weak protection countries, cash dividends and repurchases are low and less responsive to taxes. Our results suggest that when investors are protected, they weigh the tax cost of dividends against the benefit of mitigating the agency cost, but, when they are not, they accept whatever dividends they can extract, even when this entails high tax costs.     

Taxes and dividend clientele: Evidence from trading and ownership structure

Although dividend clientele have been studied over several decades, their existence remains controversial. We study the interaction of dividends and taxes by exploiting a unique dataset from Taiwan, where the capital gains tax is zero. We find strong evidence of a clientele effect. Agents subject to high rates of taxation on dividends tend to hold stocks with lower dividends and sell (buy) stocks that raise (lower) dividends. Agents in lower tax brackets behave in the opposite manner. After legalization of repurchases in 2000, firms with higher concentrations of more heavily taxed shareholders were more apt to begin repurchase programs.     

Shareholder Preferences and Dividend Policy

This paper develops a theory of choice among alternative procedures for distributing cash from corporations to shareholders. Despite the preferential tax treatment of capital gains for individual investors, it is shown that a majority of a firm's shareholders may support a dividend payment for small distributions. For larger distributions an open market stock repurchase is likely to be preferred by a majority of shareholders, and for the largest distributions tender offer repurchases dominate.     

A model of corporate rent-seeking through tax legislation

An analytic model is developed to examine the role of rent-seeking expenses on tax legislation. Rent-seeking expenses are found to be only a fraction of the tax benefits at stake. Rent-seeking expenses increase when firms cannot cooperate, when very general tax legislation is proposed, and when there is legislative support for tax cuts.     

The Effects of Stock Repurchases on Rival Firms

This paper investigates the stock price behavior of rival firms in the same industry as firms announcing stock repurchase tender offers. Using a sample of 134 repurchase announcements, I find that rival firms on average realize insignificant announcement period abnormal returns. Negative rival stock price performance is detected over longer intervals surrounding the announcement period and for a subset of announcements which ex ante were identified as most likely to affect rivals. This evidence, however, is statistically weak and does little to alter the overall conclusion that the information in repurchase announcements is primarily firm-specific.     

Taxes,tenders and the design of Australian off‐market share repurchases

In designing off‐market (self‐tender offer) share repurchases, Australian companies must consider the resulting potential tax benefits for different investor groups with consequent effects upon the supply of stock tendered by holders and the ultimate tender outcome. We develop and estimate a model of the stock supply curve that demonstrates less than perfect elasticity and incomplete tax arbitrage arising from ‘participation risk’ for potential arbitrageurs. We are able to estimate the extent of disequilibrium in prices involved in fixed‐price repurchases and show that it is substantial. We show that Australian Tax Office restrictions on the tender price range for Dutch auctions have meant that non‐participating shareholders have foregone some potential benefits through the transfer of tax benefits to (primarily institutional, low tax rate) successful tender participants. The results provide support for legislative changes proposed in 2009 (but not implemented as of mid 2011), which removed constraints on the allowable range of repurchase prices.     

土地增值税立法:目的引入与税制修正

相较于暂行条例,《土地增值税法(征求意见稿)》未设置立法目的条款,未明确税种主要属性,只在立法说明中简单阐释立法意义和税制功能,此种立法技术很难经得起正当性拷问,既无法为集体土地增值税制明确构成要件和发展趋向提供指引,还在程序和实体两个维度抑制土地增值税调控功能的充分发挥.立法目的绝非可有可无的对象,而是税收立法的起点和税制正当性的来源,是在理论上、实务中提醒和督促祛除课税弊端的最佳利器.土地增值税是地方调控税,财政目的位居其次,若欲进一步夯实其立法正当性基础,应重新设置目的条款,即"为推动房地产市场健康发展,合理调节土地增值收益,健全地方税体系,制定本法".做实土地增值税立法目的,有利于调控税制并使集体土地增值税制相关问题尽快得到解决,推进税收实质法治建设.     

A reexamination of the value of tax options

This article reexamines the value of tax trading when the taxrate on long-term realizations is less than that on short-termrealizations. In particular, the value of the option to realizelong-term capital gains and repurchase stock in order to increaseone's tax basis and restart the option to realize future lossesshort term is examined empirically. Our estimate of the incrementalvalue of restarting, which is based on the results of simulationsof several alternative tax trading policies over a large numberof independent return sequences, is generally much smaller thanthat reported by Constantinides (1984). The incremental valueof restarting is shown to depend critically on the particularpattern of realized returns and the assumed tax treatment ofunrealized capital gains at the end of the simulation period.The effects of stock price volatility, transaction costs, portfoliooffset rules, and realization cutoff levels on the value oftax trading are also investigated.     

A NOTE ON BOND DEFEASANCE

This paper provides an after-tax cash flow analysis of insubstance defeasance versus open market debt repurchase under the current tax law. Depending upon interest rates, term to maturity, and the riskiness of the corporate bond issue that managers with to remove from the balance sheet, defeasance may be the cheapest restructuring alternative available. Managers must consider all these factors before reaching a decision that is consistent with the maximization of shareholder wealth.     

应税消费品的界定、识别与调整——基于法律、技术与政治互动的税收逻辑

当前,我国消费税制改革与立法一体化工作的关键问题在于应税消费品的法治选择,该过程表现为立法框定、技术识别与政治调整的互动逻辑。在立法层面,针对现有应税消费品概念的语义抽象性,有必要在分析选择课税理论、梳理历史变迁的基础上,完成应税消费品概念的法律化和内涵化;在技术层面,基于典型税案中所暴露出的问题,应从形式和实质维度强化法律规则与技术标准的衔接;在政治层面,应从税制改革与税收法定的协调性、功能明晰与税目重构的关联性、选择课税与政治决策的程序化方面着力。     

借鉴国际经验完善避税地税务管理

避税地是经济全球化和税收竞争的产物。避税地的滥用已日益引起各国政府和国际社会的关注。本文介绍了美国、澳大利亚等国应对避税地滥用所采取的税收立法和税收征管方面的各种规制措施,并在此基础上提出我国的避税地税务管理对策。