Capital Structure,Corporate Taxation and Firm Age*

This paper analyses the relationship between corporate taxation, firm age and debt. We adapt a standard model of capital structure choice under corporate taxation, focusing on the financing and investment decisions typically faced by a firm. Our model suggests that the debt ratio is associated positively with the corporate tax rate and negatively with firm age. Further, we predict that the tax-induced advantage of debt is more important for older firms than for younger ones. To test these hypotheses empirically, we use a cross-section of around 405,000 firms from 35 European countries and 127 NACE three-digit industries. In line with previous research, we find that a firm's debt ratio increases with the corporate tax rate. Further, we observe that older firms exhibit smaller debt ratios than their younger counterparts. Finally, consistent with our theoretical model, we find a positive interaction between corporate taxation and firm age, indicating that the impact of corporate taxation on debt increases over a firm's lifetime.     

Integrating soft factors into the assessment of cooperative relationships between firms: accounting for reputation and ethical values

Alliances and other forms of cooperation between firms often promise great benefits, for example, by the exchange of knowledge or co‐specialization of resources. At the same time, the necessary actions to realize these benefits can augment vulnerability to opportunistic behaviour of partners. In addition to formal contracts to mitigate the resulting behavioural uncertainties, often, mechanisms, such as reputation or ethical values, are suggested as important supplements. However, when it comes to assessment of a specific cooperation opportunity, it is difficult to account systematically for the economic consequences of these ‘softer factors’. Therefore, this paper aims to surpass mere financial analysis of chance and risk and to integrate systematically both reputation and ethical values into an economic assessment of cooperative relationships. For this purpose, we develop a theoretical framework that is based on a simple‐decision model to account for reputation and ethical values of potential partners as drivers of behavioural uncertainty reduction. We also discuss how this framework can be used to assess cooperative relationships and illustrate these ideas with reference to the inter‐organizational accounting practices of a large drugstore chain and its suppliers.     

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Central bank transparency and financial market expectations: The case of emerging markets

In this paper, we study how central bank transparency influences the formation of money market expectations in emerging markets. The sample covers 25 countries for the period from January 1998 to December 2009. We find, first, that transparency reduces the bias (the difference between the money market rate and the weighted expected target rate over the contract period) in money market expectations. The effect is larger for countries with no exchange rate peg and countries with low income. Second, an intermediate level of transparency is found to have the most favorable influence on money market expectations: neither complete secrecy nor complete transparency is optimal. Finally, all subcategories of the Eijffinger and Geraats (2006) index lead to a smaller bias in expectations, with political transparency having the largest effect.