Corporate Taxes and Securitization

Most banks pay corporate income taxes, but securitization vehicles do not. Our model shows that, when a bank faces strong loan demand but limited deposit market power, this tax asymmetry creates an incentive to sell loans despite less‐efficient screening and monitoring of sold loans. Moreover, loan‐selling increases as a bank's corporate income tax rate and capital requirement rise. Our empirical tests show that U.S. commercial banks sell more of their mortgages when they operate in states that impose higher corporate income taxes. A policy implication is that tax‐induced loan‐selling will rise if banks’ required equity capital increases.     

Capital structure and international debt shifting

This paper presents a model of a multinational firm's optimal debt policy that incorporates international taxation factors. The model yields the prediction that a multinational firm's indebtedness in a country depends on a weighted average of national tax rates and differences between national and foreign tax rates. These differences matter as multinationals have an incentive to shift debt to high-tax countries. The predictions of the model are tested using a novel firm-level dataset for European multinationals and their subsidiaries, combined with newly collected data on the international tax treatment of dividend and interest streams. Our empirical results show that a foreign subsidiary's capital structure reflects local corporate tax rates as well as tax rate differences vis-à-vis the parent firm and other foreign subsidiaries, although the overall economic effect of taxes on leverage appears to be small. Ignoring the international debt shifting arising from differences in national tax rates would understate the impact of national taxes on debt policies by about 25%.     

The effect of banking crisis on bank-dependent borrowers

We provide causal evidence that adverse capital shocks to banks affect their borrowers’ performance negatively. We use an exogenous shock to the U.S. banking system during the Russian crisis of Fall 1998 to separate the effect of borrowers’ demand of credit from the supply of credit by the banks. Firms that primarily relied on banks for capital suffered larger valuation losses during this period and subsequently experienced a higher decline in their capital expenditure and profitability as compared to firms that had access to the public-debt market. Consistent with an adverse shock to the supply of credit, crisis-affected banks decreased the quantity of their lending and increased loan interest rates in the post-crisis period significantly more than the unaffected banks. Our results suggest that the global integration of the financial sector can contribute to the propagation of financial shocks from one economy to another through the banking channel.     

Bank Taxes,Leverage, and Risk

We use staggered changes in the taxation of banks by U.S. states to show how banks adjust their capital structure in response to taxes. A one percentage point increase in the income tax rate leads to a decrease in the ratio of equity to total assets of 15 basis points. The effect is symmetric for tax increases and decreases but heterogeneous in that small and strongly capitalized banks react more. In response to taxes, banks also adjust their assets consistent with regulatory arbitrage activities intended to keep down regulatory risk measures, thereby keeping regulatory ratios at acceptable levels despite increasing leverage. Finally, higher taxes may decrease banks’ ability to survive crises.     

Bank capital shortfall in the euro area

We quantify the bank capital shortfall that results from a financial crisis by estimating a macro-finance dynamic stochastic general equilibrium model that captures the interactions between the financial and real sectors of the euro-area economy. The introduction of both deposit and shadow banks captures several characteristics of the banking system and reveals a financial amplification mechanism. By using a combination of a large positive risk shock and a large negative investment shock, we show that a crisis similar to that observed in 2008 would generate a bank capital shortfall between 2.2% and 3% of euro-area GDP, which corresponds to approximately 207–282 billion euros.     

中美商业银行股利分红比较研究

随着资本市场的不断发展,我国证券监管部门和投资者越来越重视上市公司的股利分红问题,尤其是在我国经济中扮演着＂心脏＂角色的银行业的分红问题。然而在我国商业银行中不科学的股利分配现象还普遍存在,如股利支付率低、分红频率不高等。因次,分析我国商业银行的股利分配政策,无论对于银行业本身还是资本市场的发展都具有重要意义。本文通过对比分析中美两国上市商业银行股利分配的差异,探究其原因,并在借鉴美国成熟资本市场的经验下,提出了通过税收政策引导资本市场、推进利率市场化、改变银行盈利模式、建立多元化股权结构等措施完善我国商业银行分红情况的政策建议。     

Fiscal policy with banks and financial frictions

We assess the role of banks to the transmission of optimal and exogenous changes in fiscal policy to the economy. We built-up a dynamic stochastic general equilibrium model with patient and impatient agents, banks and a government to find that banks and their associated capital-adequacy constraint mitigate the negative spill-over effects to the economy from higher taxes. Specifically, we confirm that labour income tax is the most distortionary fiscal instrument. The optimal choice of a housing tax is the most favorable funding source to a temporary increase in public spending. The combination of housing and labour taxes is the most preferred tax bundle to be optimally chosen under negative output shocks. Moreover, a permanent increase in housing tax is beneficial if it is welfare enhancing and the existence of banks benefits mainly impatient households under permanently higher consumption taxes. Finally, these results remain robust to various robustness checks.     

The Effect of Taxes on the Location of Property-Casualty Insurance Firms

States levy insurance premium taxes, which are essentially gross receipt taxes on premiums. An unusual characteristic of insurance premium taxes is that in each state in which an insurance company writes premiums, the firm pays the higher of the tax rate in the state in which the company is domiciled and the state in which the policy is written. Thus, the choice of location has a significant effect on the firm's tax liability. Using firm-level data for the property-casualty (P-C) insurance industry, we calculate the firm-specific tax rate for each P-C firm for every possible state of domicile. We estimate conditional logistic models to analyze the effect of insurance premium taxes on the choice of the state of domicile of existing and relocated firms. We find robust evidence of a small, negative, and statistically significant effect of these taxes on the choice of the state of domicile.     

Fairly priced deposit insurance,incentive compatible regulations,and bank asset choices

This article provides incentive compatible regulations that support fairly priced deposit insurance in a competitive banking industry. If informational asymmetry exists between the regulator and banks regarding loan quality, but the regulator can observe actual loan rates charged, then imposing a capital requirement schedule that leads market loan rates to decrease in loan quality is shown to be incentive compatible. Competition in the loan market induces banks to be indifferent to all loans that satisfy a minimum acceptable quality and reject all riskier loans. The regulator could reduce the banking industry's riskiness by imposing stricter capital requirements that increase this minimum quality.     

Market Structure, Capital Regulation and Bank Risk Taking

This paper discusses the effect of capital regulation on the risk taking behavior of commercial banks. We first theoretically show that capital regulation works differently in different market structures of banking sectors. In lowly concentrated markets, capital regulation is effective in mitigating risk taking behavior because banks’ franchise values are low and banks have incentives to pursue risky strategies in order to increase their franchise values. If franchise values are high, on the other hand, the effect of capital regulation on bank risk taking is ambiguous. We then test the model predictions on a cross-country sample including 421 commercial banks from 61 countries. We find that capital regulation is effective in mitigating risk taking only in markets with a low degree of concentration. The results remain robust after accounting for financial sector development, legal system efficiency, and for other country and bank-specific characteristics.     

Taxation, Uncertainty, and the Cost of Equity

Traditionally the pre-tax cost of capital is a function of the interest rate and the tax system. However, uncertainty implies that the market's required return is no single interest rate, but depends on risk. Different tax systems split risk differently between firm and government. Thus the required expected return after corporate taxes depends on the tax system. Expressions for this are derived, based on a CAPM-type model. The weighted average cost of capital is decreasing in the tax rate, even for fully equity financed projects. This effect can be substantial, but is neglected in much of the literature.     

A quantitative analysis of inflation as a tax on the underground economy

Inflation rates are more dispersed and are persistently higher in developing countries. This paper quantifies the importance of the public-finance motive for inflation in the presence of a tax-evading sector, the underground economy. The approach is motivated by the observation that the underground economy is especially large in poor countries. The analysis builds on a general equilibrium monetary model with two production sectors, where income in one of the sectors cannot be taxed. A benevolent government finances its budget using an optimal combination of the income tax rate and the inflation rate. The model is first calibrated to the U.S. economy and is then used for a cross-country simulation. The resulting relationships between the size of an underground economy, inflation rate, income tax rate and the share of seigniorage in the government revenue rationalize the cross-country data quantitatively well.     

Government, taxes and banking crises

This paper analyzes the effectiveness of different government policies to prevent the emergence of banking crises. In particular, we study the impact on welfare of using taxpayers money to recapitalize banks, government injection of money into the banking system through credit lines, the creation of a buffer and taxes on financial transactions (the Tobin tax). We illustrate the trade-off between these policies and derive policy implications.     

Personal Taxation in Firm Market Valuation: Theory and Test*

In this paper, I extend Ohlson's 1995 firm market valuation model to incorporate personal taxes: the taxes on dividends and the taxes on capital gains. Without personal taxes, firm market value can be expressed as the present value of future benefits received by the shareholders (dividends, in this case). With personal taxes, the benefits received by the shareholders should be classified into three categories (due to their different tax treatments): dividends, share repurchases, and new share issues (i.e., contributed capital). The extended model shows the effects of personal taxation on firm market valuation: retained earnings are valued less than contributed stocks, both dividends taxes and capital gains taxes affect retained earnings valuation and firm market value, and firms choose cash distribution methods (paying dividends and repurchasing shares) to increase their retained earnings valuation, therefore increasing their market value. An empirical test using a sample from the Disclosure Select Canada and Financial Post Card data bases for the years 1995‐98 supports these personal tax effects.     

Financial development,government ownership of banks and firm innovation

Using a newly-available World Bank survey of over 28,000 firms from 46 countries, we examine how financial development affects firm innovation around the world. We find that while stock market development significantly enhances firm innovation, banking sector development has mixed effects. We show that the latter result can be explained by different levels of government ownership of banks. Specifically, in countries with lower government ownership of banks, banking sector development significantly enhances firm innovation; while in countries with higher government ownership of banks, banking sector development has no significant or sometimes even significantly negative effects on firm innovation. Such negative effects are significantly stronger for smaller firms. The results are robust to various controls such as firms’ human capital and ownership structure, to estimations using instrumental variable techniques and alternative measures of firm innovation.     

商业银行股权激励的特殊意义与现实问题分析

银行业普遍存在的管制,使银行面临着有限的控制权市场和接管威胁,从而大大降低了市场约束银行管理者的能力,因此对银行而言,通过股权激励机制协调股东和管理者的利益、降低代理成本显得尤为重要.我国商业银行实施股权激励不应盲目照搬西方国家的范例,应慎重选择股权激励的实施范围,目前最好只局限在高级管理人员,通过对股权激励机制的合理设计来充分发挥其长期激励效应,切不可盲目扩大激励范围,将股权激励演变成一种新的福利措施.应尽快建立起以经济资本为核心的业绩考核体系,在经济资本的约束下实现业务发展模式和盈利模式的转变.股权激励机制的有效实施离不开完善的银行治理结构.     

Bank Portfolio Allocation: The Impact of Capital Requirements, Regulatory Monitoring, and Economic Conditions

This paper develops a structural, dynamic model of a banking firm to analyze how banks adjust their loan portfolios over time. In the model, banks experience capital shocks, face uncertain future loan demand, and incur costs based on their proximity to regulatory minimum capital requirements and the intensity of regulatory monitoring. Implications of the model then are estimated using panel data on large U.S. commercial banks operating continuously between December 1989 and December 1997. The estimated model is used to simulate the optimal bank response to (1) past and proposed changes in capital requirements, (2) changes in regulatory monitoring intensity, and (3) economic downturns. The simulation results are used to shed light on the decline in loan growth and the rise in bank capital ratios witnessed over a decade ago as well as the possible impact of the current proposed modification to capital requirements.     

Payout policy in Brazil: Dividends versus interest on equity

We examine the impact of tax burden on cash distribution using a sample of Brazilian firms, which are allowed by law to distribute cash to shareholders in two forms: dividends and tax-advantaged interest on equity. The Brazilian institutional setting is superior to those used in prior studies that examine the choice between dividends and capital gains because, in some cases, dividends provide advantages that outweigh their negative tax consequences, leading firms to rationally choose payout policies that are not optimal when viewed only from the perspective of taxes. We find that taxes are a primary determinant of Brazilian firms’ payout policy decisions, as profitability and payout ratios (nonequity tax shields) are positively (negatively) related to the likelihood that a firm pays interest on equity. However, many firms continue to pay dividends despite the tax advantages of interest on equity payments. Abnormal returns around payout policy announcements suggest that these firms are, at least in part, catering to investor demand.     

Capital Structure, Agency Problems, and Deposit Insurance in Banking Firms

This paper applies and synthesizes various theories of corporate finance, including capital structure, agency insurance, and regulation, to the case of banking firms and the deposite insurance system. It is argued that a value-maximizing bank would reach its optimal capital structure by minimizing the agency costs of incentive conflicts among stockholders, managers, uninsured depositors, and the deposit insurance agency. Although a regulatory imposed capital requirment may reduce the agency costs inherent in the insurance contact, it cannot produce a universal capital structure that is optimal for all insured banks. The observed capital structure patterns also suggest that banks actively seek an optimal capital structure.     

Joint Effects of Interest Rate Deregulation and Capital Requirements on Optimal Bank Portfolio Adjustments

The 1980 Depository Institution Deregulation and Monetary Control Act (DIDMCA) mandates that Regulation Q be phased out by 1986. With deregulation of interest rate ceilings, the cost of raising capital funds for commercial banks would become more volatile and more closely related with interest rates in the money and capital markets. Thus, value-maximizing bank managers would need to be concerned not only with the internal risk, but also with the external risk in bank portfolio management decisions. Based upon the cash flow version of the capital asset pricing model, this paper analyzes the joint impact of interest rate deregulation and capital requirements on the portfolio behavior of a banking firm.