Do corporate tax cuts increase investments?

This paper studies the effect of corporate taxes on investment. Since firms with a foreign parent have more cross-country profit shifting opportunities than domestically owned firms do, their effective tax rate and, consequently, their tax-induced costs to investment are lower. We therefore expect capital investment responses to a corporate tax cut to be heterogeneous across firms. Using firm-level data on German corporations, we exploit the 2008 tax reform, which substantially cut corporate taxes as an exogenous policy shock and expect domestically owned firms' investments to be more responsive to the reform. We show exactly this in a difference-in-differences setting. We find that the reduction in corporate tax payments led to a one-to-one increase in the real investments of domestic firms. The effect is stronger for domestic firms relying more on internal funds. Correspondingly, labor investment increased more for domestic firms, ensuring a constant mix of input factors. In addition, we show that domestic firms' sales grew faster after the tax cut than the sales of foreign-owned firms. Our results imply that corporate tax changes can increase corporate investment but that domestic firms benefit more than foreign-owned firms from a tax cut through higher investment responses resulting in greater sales growth.     

The service-driven service company

For more than 40 years, service companies like McDonald's prospered with organizations designed according to the principles of traditional mass-production manufacturing. Today that model is obsolete. It inevitably degrades the quality of service a company can provide by setting in motion a cycle of failure that produces dissatisfied customers, unhappy employees, high turnover among both--and so lower profits and lower productivity overall. The cycle starts with human resource policies that minimize the contributions frontline workers can make: jobs are designed to be idiot-proof. Technology is used largely for monitoring and control. Pay is poor. Training is minimal. Performance expectations are abysmally low. Today companies like Taco Bell, Dayton Hudson, and ServiceMaster are reversing the cycle of failure by putting workers with customer contact first and designing the business system around them. As a result, they are developing a model that replaces the logic of industrialization with a new service-driven logic. This logic: Values investments in people as much as investments in technology--and sometimes more. Uses technology to support the efforts of workers on the front lines, not just to monitor or replace them. Makes recruitment and training crucial for everyone. Links compensation to performance for employees at every level. To justify these investments, the new logic draws on innovative data such as the incremental profits of loyal customers and the total costs of lost employees. Its benefits are becoming clear in higher profits and higher pay--results that competitors bound to the old industrial model will not be able to match.     

The Voluntary Restructuring of Large Firms In Response to Performance Decline

Much of the research on corporate restructuring has examined the causes and aftermath of extreme changes in corporate governance such as takeovers and bankruptcy. In contrast, we study restructurings initiated in response to product market pressures by “normal” corporate governance mechanisms. Such “voluntary” restructurings, motivated by the discipline of the product market and internal corporate controls, will play a relatively more important role in the 1990s due to a weakening in the discipline of the takeover market. Our data suggest that the firms retrenched quickly and, on average, increased their focus. There is no evidence of abnormally high levels of forced turnover in top managers. There is, however, a significant and rapid cut of 5% in the labor force. Further, the cost of goods sold to sales and labor costs to sales ratios both decline rapidly, more than 5% in the first two years after the negative earnings. The firms cut research and development, increased investment, and also reduced their debt/asset level by over 8% in the first year after the negative earnings. We also document the reasons management and analysis reported for the negative earnings. Overwhelmingly the firms blame bad economic conditions and, to a lesser extent, foreign competition.     

The new boundaries of the "boundaryless" company

In an economy founded on innovation and change, one of the premier challenges of management is to design more flexible organizations. For many executives, a single metaphor has come to embody this managerial challenge and to capture the kind of organization they want to create: the "corporation without boundaries." According to Larry Hirschhorn and Thomas Gilmore of the Wharton Center for Applied Research, managers are right to break down the boundaries that make organizations rigid and unresponsive. But they are wrong if they think that doing so eliminates the need for boundaries altogether. Once the traditional boundaries of hierarchy, function, and geography disappear, a new set of boundaries becomes important. These new boundaries are more psychological than organizational. They aren't drawn on a company's organizational chart but in the minds of its managers and employees. And instead of being reflected in a company's structure, they must be "enacted" over and over again in a manager's relationships with bosses, subordinates, and peers. In this article, Hirschhorn and Gilmore provide a guide to the boundaries that matter in the "boundaryless" company. They explain how these new boundaries are essential for both managers and employees in coping with the demands of flexible work. They describe the typical mistakes that managers make in their boundary relationships. And they show how executives can become effective boundary managers by paying attention to a source of data they have often overlooked in the past: their own gut feelings about work and the people with whom they do it.     

Understanding "people" people

Nearly all areas of business--not just sales and human resources--call for interpersonal savvy. Relational know-how comprises a greater variety of aptitudes than many executives think. Some people can "talk a dog off a meat truck," as the saying goes. Others are great at resolving interpersonal conflicts. Some have a knack for translating high-level concepts for the masses. And others thrive when they're managing a team. Since people do their best work when it most closely matches their interests, the authors contend, managers can increase productivity by taking into account employees' relational interests and skills when making personnel choices and project assignments. After analyzing psychological tests of more than 7,000 business professionals, the authors have identified four dimensions of relational work: influence, interpersonal facilitation, relational creativity, and team leadership. This article explains each one and offers practical advice to managers--how to build a well-balanced team, for instance, and how to gauge the relational skills of potential employees during interviews. To determine whether a job candidate excels in, say, relational creativity, ask her to describe her favorite advertising campaign, slogan, or image and tell you why she finds it to be so effective. Understanding these four dimensions will help you get optimal performance from your employees, appropriately reward their work, and assist them in setting career goals. It will also help you make better choices when it comes to your own career development. To get started, try the authors' free online assessment tool, which will measure both your orientation toward relational work in general and your interest level in each of its four dimensions.     

Value Maximization,Stakeholder Theory,and the Corporate Objective Function

This paper examines the role of the corporate objective function in increasing corporate productivity, social welfare, and the accountability of managers and directors. Because it is logically impossible to maximize in more than one dimension, purposeful behavior requires a “single-valued” objective function. Two hundred years of work in economics and finance implies that, in the absence of externalities and monopoly, social welfare is maximized when each firm in an economy aims to maximize its total market value. The main contender to value maximization is stakeholder theory, which argues that managers should attempt to balance the interests of all corporate stakeholders, including not only financial claimants, but employees, customers, communities, and governmental officials. By refusing to specify how to make the necessary tradeoffs among these competing interests, the advocates of stakeholder theory leave managers with a theory that makes it impossible for them to make purposeful decisions. With no clear way to keep score, stakeholder theory effectively makes managers unaccountable for their actions (which helps explain the theory's popularity among many managers). But if value creation is the overarching corporate goal, the process of creating value involves much more than simply holding up value maximization as the organizational objective. As a statement of corporate purpose or vision, value maximization is not likely to tap into the energy and enthusiasm of employees and managers. Thus, in addition to setting up value maximization as the corporate scorecard, top management must provide a corporate vision, strategy, and tactics that will unite all the firm's constituencies in its efforts to compete and add value for investors.     

Share Repurchases and Pay-Performance Sensitivity of Employee Compensation Contracts

I show that share repurchases increase pay-performance sensitivity of employee compensation and lead to greater employee effort and higher stock prices. Consistent with the model, I find that after repurchases, employees and managers receive fewer stock option and equity grants, and that the market reacts favorably to repurchase announcements when employees have many unvested stock options. Managers are more likely to initiate share repurchases when employees hold a large stake in the firm. Moreover, since employees are forced to bear more risk in firms that repurchase shares, they exercise their stock options earlier and receive higher compensation.     

A stake in the business

When Chris Sullivan and three friends opened the first Outback Steakhouse in March 1988, in Tampa, Florida, they were hoping it would be successful enough to spawn a few more and maybe some other kinds of restaurants as well. Since then, their chain of Australia-themed restaurants has grown to some 900 locations and counting-plus another 300 or so "concept" restaurants that operate from under Outback's corporate umbrella. Growth like that doesn't happen accidentally, Sullivan says, but it certainly wasn't part of the original plan. In this first-person account, Outback's chairman describes the organization's formula for growth and development, which is consciously rooted in the founders' belief in putting people first. They've created an organizational model in which field managers make most of the decisions, garner the rewards, and live with the consequences. Specifically, the founders believe that the most effective way to make customers happy is to first take care of the people who cook for them, serve them, and supervise operations at the restaurants. Outback servers have fewer tables to worry about than those at other restaurant chains; the cooks have bigger, cooler, better-equipped kitchens; and the supervisors work their way up the ranks toward an equity stake in the restaurant or region they run. There are no administrative layers between field managers and the executives at headquarters. Giving employees good working conditions and the chance to become owners has proved to be good business: Turnover among hourly employees is low, and Outback and its subsidiaries opened 120 restaurants last year, increasing sales by 20.1%. The company must grow in order to keep offering career opportunities to its workers; in turn, those opportunities ensure that Outbackers remain committed to making customers happy and the company successful.     

The bright side of the internal labor market: Evidence from the labor cost stickiness of firms affiliated with privately owned business groups in China

We examine whether having an internal labor market can help a firm affiliated with a privately owned business group (POBG) reduce labor cost stickiness. Our findings suggest that, when a POBG-affiliated firm experiences a decrease in sales, it has lower labor cost stickiness than an otherwise equivalent firm that is not affiliated with a POBG. Specifically, we find that, on average, a POBG-affiliated firm entirely mitigates labor cost stickiness when it has a decrease in sales. In addition, we document that, to adjust its labor cost downward, a POBG-affiliated firm hires fewer employees, rather than paying lower wages. We show that the lower labor cost stickiness is due to movement of employees from the focal firm to other firms within the same POBG. When sales fall, the POBG reallocates excess employees at the focal firm to other firms within the business group via an internal labor market, and the focal firm thereby increases its per capita profit. Moreover, we find that agency cost mediates the impact of a POBG on labor cost stickiness. When the external market is less effective or the POBG headquarters have strong incentives, the effect of POBG affiliation on the reduction in an affiliated firm's labor cost stickiness is more salient.     

失业保险与公司财务杠杆

我国劳动力市场化程度日益加深导致劳动者职业转换愈加频繁,失业保险的作用日益突出。本文探究了失业保险金水平对企业财务杠杆的影响。运用2009—2019年上市公司数据进行实证分析,结果发现失业保险金上升会导致公司财务杠杆下降。渠道检验显示,提高失业保险金可以降低员工失业风险溢酬,公司劳动力成本下降,公司有更多自由现金流和盈利进行内源融资和偿还债务,公司财务杠杆下降。进一步分析发现,失业保险金的作用在失业率高的地区更加显著。主要结果在分别运用《社会保险法》和《关于调整失业保险金标准的指导意见》构造双重差分模型和工具变量解决内生性问题、更改模型设置、排除投资水平影响、删除特殊省份、更换样本期间后,依然成立。本文结果说明加大失业保险保障力度有助于降低企业财务风险。     

The relevance of information and trading costs in explaining momentum profits: Evidence from optioned and non-optioned stocks

Considerable evidence from many countries suggests momentum strategies generate profits. These have been difficult to rationalise and evidence on the sources of such profitability is inconclusive. We utilise a sample of optioned stocks, characterised by high liquidity, high market capitalisation and fewer short sales constraints and compare results with control samples of non optioned stocks chosen on the basis of market value, turnover and bid–ask spread. The sample characteristics, and the fact that derivatives improve the impounding of information into prices, enable us to draw conclusions about the causes of momentum profits. While we find that short sales constraints are not the major driver of profitability and that most momentum profits disappear using two transactions costs measures of the bid–ask spread, one not previously used, the persistence of some momentum profits indicates that the market underreacts even to the most publicly available information.     

The real value of China’s stock market

What capital allocation role can China’s stock market play? Counter to perception, stock prices in China have become as informative about future profits as they are in the US. This rise in stock price informativeness has coincided with an increase in investment efficiency among privately owned firms, suggesting the market is aggregating information and providing useful signals to managers. However, price informativeness and investment efficiency for state-owned enterprises fell below that of privately owned firms after the postcrisis stimulus, perhaps reflecting unpredictable subsidies and state-directed investment policy. Finally, evidence from realized returns suggests Chinese firms face a higher cost of equity capital than US firms.     

Dividend taxes,employment, and firm productivity

The paper examines the effect of dividend taxation on employment and productivity. I exploit a dividend tax cut of 10 percentage points for closely held private corporations in Sweden. Using data on all closely held Swedish firms with exact information on employees and their wages, I find that firms with limited internal funds increase productivity and wages relative to firms with sufficient internal funds whose investment decisions are less affected by dividend taxes. My findings indicate that dividend taxes constrain firms in investing efficiently. Lower taxes can result in higher capital and labor input and, thus, in higher productivity.     

Information technology,organizational design,and transfer pricing

We show how information technology affects transfer pricing. With coarse information technology, negotiated transfer pricing has an informational advantage: managers agree to prices that approximate the firm's cost of internal trade more precisely than cost-based transfer prices. With sufficiently rapid offers, this advantage outweighs opportunity costs of managers’ bargaining time, and negotiated transfer pricing generates higher profits than the cost-based method. However, as information technology improves, the informational advantage diminishes; the opportunity costs of managers’ bargaining eventually dominate, and cost-based methods generate higher profits. Our results explain why firms generally prefer cost-based methods, and when negotiated methods are preferable.     

Punch out the time clocks

Today's work environment is full of contradictions. On the one hand there aren't enough jobs to go around and on the other some people who have jobs would trade pay for time off. Some managers, at least managers of one-fifth of the labor force, are resolving this contradiction with an elegantly simple solution. They are installing some version of alternative work schedules: flexitime, permanent part-time jobs, job sharing, compressed workweeks, and work sharing, which give employees more control over their professional and personal lives and give employers, for instance in an economic downturn, a way, a way to keep experienced workers on the job without straining budgets. The authors of this article, both of whom have helped develop alternative work schedules, describe the five forms and how numerous employers across the country are adapting them to their purposes. They predict that eventually most U.S. employees will be working under some form of the new schedules.     

The macroeconomic determinants of technology stock price volatility

Stock prices reflect the value of anticipated future profits of companies. Since business cycle conditions impact the future profitability of firms, expectations about the business cycle will affect the current value of firms. This paper uses daily and monthly data from July 1986 to December 2000 to investigate the macroeconomic determinants of US technology stock price conditional volatility. Technology share prices are measured using the Pacific Stock Exchange Technology 100 Index. One of the novel features of this paper is to incorporate a link between technology stock price movements and oil price movements. The empirical results indicate that the conditional volatilities of oil prices, the term premium, and the consumer price index each have a significant impact on the conditional volatility of technology stock prices. Conditional volatilities calculated using daily stock return data display more persistence than conditional volatilities calculated using monthly data. These results further our understanding of the interaction between oil prices and technology share prices and should be of use to investors, hedgers, managers, and policymakers.     

Blockholder Trading,Market Efficiency,and Managerial Myopia

This paper analyzes how blockholders can exert governance even if they cannot intervene in a firm's operations. Blockholders have strong incentives to monitor the firm's fundamental value because they can sell their stakes upon negative information. By trading on private information (following the “Wall Street Rule”), they cause prices to reflect fundamental value rather than current earnings. This in turn encourages managers to invest for long‐run growth rather than short‐term profits. Contrary to the view that the U.S.'s liquid markets and transient shareholders exacerbate myopia, I show that they can encourage investment by impounding its effects into prices.     

The "barbarians" in the boardroom

According to conventional wisdom, the corporate raiders and buyout specialists who flourished in the 1980s were the antithesis of good management. Their goals of realizing quick profits from the acquisition of major companies--frequently through rapid cost-cutting and the breakup of conglomerates--made them the bane of old-school corporate leaders. Long-term management, it seemed, was being sacrificed on the altar of short-term profits. With the abatement of takeovers in recent times, top corporate managers have hailed a return to business-as-usual. But the takeover artists have not, in fact, retreated. Instead, these corporate acquirers, many of whom own large stakes in major industrial companies, are assuming board seats and switching their emphasis to overseeing the companies they control--with an eye toward the long term. In this new role, the takeover experts are not plunderers, nor are they creating quick profit at the expense of companies' long-term health; rather, they are defying expectations and, in a number of important respects, successfully implementing the agenda of the gurus of good management. Setting the pace in this new arena is the most powerful takeover group of the 1980s, the leveraged buyout firm of Kohlberg Kravis Roberts & Company. KKR's partners hold board seats at nine different companies with $1 billion a year or more in sales.(ABSTRACT TRUNCATED AT 250 WORDS)     

Is corporate social responsibility engagement influenced by nearby firms? Evidence from China

This paper explores whether the CSR engagement of a focal firm is influenced by the CSR density formed by nearby firms. Using a sample of listed firms from 2010 to 2019 in China, we find a positive relationship between the local CSR density and the CSR engagement of a focal firm. Based on the heterogeneous analysis, we find that the impact of local CSR density is more pronounced for firms with worse financial conditions (i.e., lower profits, cash to debt, sales to inventory, and higher leverage), less corporate investment (i.e., lower capital expenditure growth, organization capital investment, employee growth) and fewer market shares. The primary findings are robust after addressing potential concerns. Overall, our findings provide evidence of the effect of firms' locations in the context of CSR engagement and have insightful implications for managers and governments seeking CSR improvement in emerging markets.     

Earnings Quality Based on Corporate Investment Decisions

In this paper, I examine a new approach for measuring earnings quality, defined as the closeness of reported earnings to “permanent earnings,” based on firm decisions with regard to capital and labor investments. Specifically, I measure earnings quality as the contemporaneous association between changes in the levels of capital and labor investment and the change in reported earnings. This approach follows the reasoning that (1) firms make investment decisions based on the net present value (NPV) of investment projects and (2) reported earnings with higher quality should more closely associate with real investment decisions. I find that measures of earnings quality based on managerial labor and capital decisions correlate positively with earnings persistence and have incremental explanatory power relative to earnings‐quality measures used in the accounting literature. Furthermore, investment‐based earnings‐quality measures are less informative when managers tend to overinvest.