Firm-level determinants of tax evasion in transition economies

Business tax evasion is an important issue for governments. Yet the factors that determine business tax evasion have not been sufficiently examined in the literature in general, and in transition contexts in particular. To address this gap, this study uses the WB/EBRD Business Environment and Enterprise Performance Survey (BEEPS) database with a sample of over 12,692 firms from 26 transition economies. Applying various modelling strategies, we argue that tax evasion is a function of firm-level and institutional-level variables. We contribute to the literature by providing robust evidence showing that the perceived tax burden has a positive impact on tax evasion. We also find that the tax evasive behaviour of firms is positively influenced by low trust in government and in the judicial system as well as by higher perceptions of corruption and higher compliance costs. We find that smaller firms, individual businesses and firms in sectors that are less visible to the tax administration are more likely to get involved in evasive behaviour. Overall, institutional factors play an important role in determining firms’ tax evasion behaviour in transition economies. This finding has important policy implications.     

Debt enforcement,investment, and risk taking across countries

We argue that the prospect of an imperfect enforcement of debt contracts in default reduces shareholder–debtholder conflicts and induces leveraged firms to invest more and take on less risk as they approach financial distress. To test these predictions, we use a large panel of firms in 41 countries with heterogeneous debt enforcement characteristics. Consistent with our model, we find that the relation between debt enforcement and firms’ investment and risk depends on the firm-specific probability of default. A differences-in-differences analysis of firms’ investment and risk taking in response to bankruptcy reforms that make debt more renegotiable confirms the cross-country evidence.     

Corporate Cash Holding in Asia

In this paper, we analyze the determinants of corporate saving in the form of changes in cash holdings for 11 Asian economies using firm‐level data from the Oriana Database for the 2002–2011 period. We find some evidence that cash flow has a positive impact on the change in cash holdings (i.e. that the cash flow sensitivity of cash is positive) and that the positive impact of cash flow on the change in cash holdings is larger and more significant in the case of smaller and presumably more constrained firms than in the case of larger and presumably less constrained firms in both developed and developing economies. Both of these findings corroborate the importance of financial constraints in Asian firms. In addition, we find that the cash flow sensitivity of cash declined after the global financial crisis and that Tobin's q has a positive impact on the change in cash holdings, especially in the case of larger and presumably unconstrained firms.     

Country Differences in Material Deprivation in Europe

This paper assesses to what extent differences in the characteristics of individuals (micro‐level perspective) and country‐specific factors (macro‐level perspective) can explain country differences with respect to material deprivation levels. Thus, our work aims to simultaneously consider the macro dimension and the predominantly individually‐oriented study field of material deprivation using multilevel techniques. We make use of the European Union Statistics on Income and Living Conditions. Our results show that country‐specific factors seem to be much more relevant than individual effects in explaining country differences in material deprivation. We estimate that the introduction of country‐specific factors reduces the proportion of total variance due to between‐country differences in deprivation by 72.7 percent, while individual‐level variables reduce this proportion by only 9.4 percent. We also show, through interaction variables, that the effect of sociodemographic characteristics can be shaped by institutional and structural factors, especially by the level of GDP.     

Measuring the Level and Inequality of Wealth: An Application to China

We construct and compare three distinct measures of household asset wealth that complement traditional income‐ or expenditure‐based measures of socioeconomic status. We apply these measures to longitudinal household survey data from China and demonstrate that household asset wealth has been increasing over time, a theme consistent with many previous studies on the process of development in China. Unlike other studies that have shown rising income inequality over time, however, we show that asset wealth inequality has actually been declining in recent years, indicating widespread participation in the benefits of economic reforms. Furthermore, the evolution in the cumulative distribution of household welfare is such that social welfare has been increasing with the passage of time, despite rising inequality in the early years of the survey.     

Stock markets’ bubbles burst and volatility spillovers in agricultural commodity markets

Our paper focuses on commodity financialization and the gradual integration between commodity and financial markets, investigating to what extent shocks in stock markets impact commodity price volatility, and the persistency of the phenomenon. To this end, we estimate Volatility Impulse Response Function from stock markets to agricultural commodity markets over a symmetric window before and after two of the most important bubble bursts since the new millennium, the 2000 dot.com bubble and the 2008 financial crises. Results highlight that volatility spillover increased significantly after the 2008 financial crises, signalling a rising interconnection between financial and agricultural commodity markets.     

Bidder's Gain: Evidence from Termination Returns

In most cases, bidder's stock returns around merger announcement convey more information than the synergy created from the acquisition. To overcome the interpretation problem, I study the bidder's return from the perspective of deal termination. Using a hand‐collected dataset on terminated merger proposals, I investigate termination returns in deals canceled for reasons unrelated to the bidder's stand‐alone valuation. I find that bidder's gain varies significantly with the type of target acquired. Further evidence suggests that the liquidity need of private target significantly contributes to the positive gain to the bidder.     

Household Debt Overhang and Transmission of Monetary Policy

We investigate how the level of household indebtedness affects the monetary transmission mechanism in the U.S. economy. Using state‐dependent local projection methods, we find that the effects of monetary policy are less powerful during periods of high household debt. In particular, the impact of monetary policy shocks is smaller on GDP, consumption, residential investment, house prices, and household debt during a high‐debt state. We then build a partial equilibrium model of borrower households with financial constraints to rationalize these facts. The model points to the weakening of the home equity loan channel as a possible reason for the decline in monetary policy effectiveness when initial debt levels are high.     

Investment horizons,cash flow news,and the profitability of momentum and reversal strategies in the Chinese stock market

This study investigates the profitability of momentum and reversal strategies of different investment horizons in the Chinese stock market. The findings indicate that momentum strategies are profitable for investment horizons less than one week. For longer investment horizons, reversal strategies are profitable. This result is very different from the US market, where profitable momentum strategies yield to much longer investment horizons. We show that this is because investors in Chinese stock market generally overreact to the company cash flow news while investors in US market underreact to cash flow news.