Corporate flat tax reforms and businesses’ investment decisions: evidence from Switzerland

This paper focuses on the effects of a corporate income flat tax reform on businesses’ investment decisions. Since 1990, several Swiss states (cantons) have been switching from a graduated to a flat tax rate scheme on profits. The paper assesses the effects of such a reform both on the number of establishments (i.e. extensive margin of investment) and on the number of employees (i.e. intensive margin) in a given jurisdiction by computing a difference-in-differences estimation. Our results suggest that the introduction of a flat tax reform on corporate income taxes has a negative and statistically significant impact on both margins of investment. Moreover, the effect is considerably larger for riskier firms, suggesting that progressive taxation acts as an insurance effect for risk-averse entrepreneurs.     

Corporation tax asymmetries: effective tax rates and profit shifting

This paper examines the way in which the asymmetric treatment of losses within corporate tax codes can be expected to affect behavioural responses to changes in tax rates. The paper uses the concept of an equivalent tax function, raising the same present value of tax payments as the actual function, in which the effective rate on losses in any period, and thus the degree of asymmetry, is explicit. The influence on the elasticity of tax revenue with respect to the tax rate of this effective rate is then examined, where ‘loss-shifting’ occurs. Results suggest that estimates of the behavioural effect on tax revenues of changes in tax rates can be expected in general to be smaller in regimes which involve greater asymmetries in the tax treatment of losses. Importantly, as losses vary over the economic cycle, the model predicts that the asymmetric tax treatment generates effects on tax revenues that are non-linear between above-trend and below-trend parts of the cycle.     

The effect of investment tax incentives: evidence from China’s value-added tax reform

We estimate the impact of investment tax credit on firm fixed investment in a difference-in-differences-in-differences framework, using China’s 2004 value-added tax reform pilot that introduces a permanent 17%-tax credit for fixed investment in six industries in the Northeastern region. The tax credit raises significantly fixed investment of eligible firms by 28% on average during 2004–2007 relative to 2001–2003, corresponding to a user cost elasticity of 1.84. The tax incentive has larger effects on firms that are less financially constrained such as smaller firms and firms with a larger cash flow. The result is largely driven by responses of domestic private firms and is robust to specifications addressing the issue of anticipation.     

Banking relationship and research spin-offs’ life cycle: The Italian experience

Research Spin-Offs (RSOs) are special firms created within universities or research institutes that require significant financial resources to transfer their innovative technologies to the market. This work studies an important driver of RSOs’ success, i.e. the local banking environment in which such firms operate. Empirical results highlight that the local development of the banking sector does not affect RSO performance at the time of incubation, when the main source of funding comes from public contributions. Conversely, there is a significant positive and growing influence of local banking relationships when the RSO enters the market and becomes independent of public resources. The findings suggest that governments and banking institutions should develop new financial instruments to support RSOs, especially during the early stages of their life cycle. RSOs should consider bank debt as a complementary source of funding that allows them to encounter the vital growth opportunities emerging during the incubation phase.     

Correction to: The impact of large tax settlement favorability on firms’ subsequent tax avoidance

Review of Accounting Studies - The author has to move Table 7 “Sample selection for large tax settlement favorability measure” as Table 1 and mention it at “This procedure,...     

The effects of analysts’ tax expense forecast accuracy on corporate tax avoidance: An international analysis

A spotlight has recently been cast on the role of analysts as monitors of corporate tax planning, but investigations beyond the US are rare. After extension to the international setting, I investigate whether the strength of investor protection impacts the relationship between analysts’ tax expense forecast accuracy and tax avoidance. Using a sample from 24 countries, I find that firms with high analysts’ tax expense forecast accuracy engage in lower levels of tax avoidance than firms with low forecast accuracy; this relationship is greater for firms in countries with weaker investor protection. These findings suggest that the extent of country-level investor protection substitutes for firm-level governance in constraining managerial incentives for tax avoidance.     

The taxman cometh: Does tax uncertainty affect corporate cash holdings?

We examine whether firms hold more cash in the face of tax uncertainty. Because of gray areas in the tax law and aggressive tax avoidance, the total amount of tax that a firm will pay is uncertain at the time it files its returns. The tax authorities can challenge and disallow the firm’s tax positions, demanding additional cash tax payments. We hypothesize that firms facing greater tax uncertainty hold cash to satisfy these potential future demands. We find that both domestic firms and multinational firms hold larger cash balances when subject to greater tax uncertainty. In terms of economic significance, we find that the effect of tax uncertainty on cash holdings is comparable to that of repatriation taxes. Our evidence adds to knowledge about the real effects of tax avoidance and provides a tax-based precautionary explanation for why there is such wide variation in cash holdings across firms.     

For whom (and for when) is the firm governed? The effect of changes in corporate fiduciary duties on tax strategies and earnings management

The proper object of the fiduciary duties of corporate directors and officers is frequently described as the central question in all corporate law. We use the adoption of constituency statutes, which shift the loci of corporate managers' duties from shareholders to a wide range of stakeholders, as a quasi-natural experiment to determine the actual impact of fiduciary duties. We find that though the adoption of constituency statutes has no significant effect on measures of earnings management, it has a robust effect on firms' effective tax rate, which increases in a range between 0.570% and 1.903%. These results are robust in terms of various measures of the firm's effective tax rate. We provide explanations for why fiduciary duties apparently do not influence manager behaviours in relation to shareholders but do affect their behaviours in relation to the taxing authority. We argue that a change to fiduciary duties does not appear to alter the motivation of managers to maximize shareholder welfare outcomes, but rather it allows them to eschew short-term strategies that often impair long-term outcomes.     

The standard-setters’ toolkit: can principles prevail over bright lines?

We study lease accounting in an international panel data set to examine how accounting outcomes vary with two features of accounting standards: the emphasis on using professional judgement to apply principles, and the presence or absence of bright-line tests. We study four countries—Australia, Canada, the UK, and the US—and companies in two lease-intensive industries—retail and transportation. Our primary study period spans the time when Australia and the UK switched from domestic to international accounting standards, and in one test, we also consider Canada’s transition to international standards. We find that neither an explicit requirement to apply a principle nor omitting bright-line tests materially increases the use of capital lease treatment among these firms. Overall, we conclude that this financial reporting outcome is relatively insensitive to these standard-setting tools.     

Do mega-mergers create value? The acquisition experience and mega-deal outcomes

Existing literature shows that mega-M&A deals valued over $500mil end up destroying the shareholder value of acquirers on a significant scale. Our paper considers mega-deal as a dependent event and examines the role of acquirer’s previous acquisition experience playing in the outcome of mega-deals. We find that mega-deals conducted by firms with a high level of acquisition experience, i.e. a firm completed at least 12 transactions before, are more likely to be completed. In addition, more experienced acquirers of mega-deals generate positive abnormal stock returns for shareholders in both short-run and long-run, with a dollar value gain of $50.6 million around deal announcement. We also find that more experienced acquirers are better at managing the post-acquisition integration process and enjoy a significant improvement in operating performance.     

The “Rent-To-Own” mortgage and prepayment risk

The most important risk factor in the mortgage and mortgage-backed security market has been prepayment risk. Various innovations have arisen to deal with it but none hedge it fully. The Rent-To-Own (RTO) mortgage discussed here is a mortgage instrument that reduces or even reverses prepayment risk. It does so by creating an incentive structure within the framework of the mortgage contract that penalizes prepayment when interest rates are low and rewards it when interest rates are high. This is the opposite of standard mortgages. The RTO incentive structure is based on a unique buyout feature. Borrowers who want to buy out the financial interest of the lender may do so whenever they want, but the buyout price is a negative function of the market interest rates prevailing currently, that is, at the time of the buyout. Hence the lower these rates, the higher the buyout price. Other advantages of the RTO mortgage are also described.     

Optimal tax policy and expected longevity: a mean and variance utility approach

This paper studies the normative problem of redistribution between agents who can influence their survival probability through private health spending, but who differ in their attitude towards the risks involved in the lotteries of life to be chosen. For that purpose, a two-period model is developed, where agents’ preferences on lotteries of life can be represented by a mean and variance utility function allowing, unlike the expected utility form, some sensitivity to what Allais (Econometrica 21(4), 503–546, 1953) calls the ‘dispersion of psychological values’. It is shown that if agents ignore the impact of health spending on the return of their savings, the decentralization of the first-best utilitarian optimum requires intergroup lump sum transfers and group-specific positive taxes on health spending. Under asymmetric information, a differentiated taxation across agents is still required, but subsidizing health spending may be optimal as a way to solve the incentive problem.     

Who’s calling? The effect of phone calls and personal interaction on tax compliance

International Tax and Public Finance - Most tax agencies use letters as the method of communicating with taxpayers. Still, other technologies exist that could be more effective. This paper reports...     

The future (and the now) according to Jacques Ellul: Deterministic or mindful?

Across a point–counterpoint interpretation, we argue that Ellul's thesis of the technological society is perhaps not as deterministic or fatalistic as some of his critics may claim. At once, divergent and similar to Touraine's more optimistic message of the transformative subject, Ellul proposes a dialectical approach, which in many ways reminds us of Weick's own call towards mindfulness. It is a way forward for mankind that is far from easy: one that involves self-critique, humility and overcoming our passions of greed, coercive power as well as our fear of authentic freedom.     

The Influential Factors on Outward Foreign Direct Investment: Evidence from the “The Belt and Road”

ABSTRACT

In this article, we investigate the nonlinear impact on outward foreign direct investment (OFDI) using panel smooth transition regression (PSTR) model with the sample of 12 countries along “The Belt and Road Initiative” in the period of 2010–2015. We find that both overall economic freedom (EF), the interaction of EF and institutional instance, bilateral trade, GDP, and patent significantly influence OFDI. We also demonstrate that EF and economic development exert the inverted “U” effect on OFDI in the different regime. Accordingly, policies specifically designed to increase development of OFDI should be required to address the negative effects considering the differences of EF and economic development.     

The influence of cultural tightness–looseness,religiosity, and the institutional environment on tax evasion behaviour: A cross-country study

We examine whether the strength of norms and tolerance for deviations play a role in explaining cross-country differences in tax evasion (TEVA). We also investigate the effects of religiosity, legal enforcement, voice and accountability, and the stability of political systems on TEVA across 48 countries over the period 1997–2018. Results show that the higher the voice and accountability and the lower the degree of cultural tightness–looseness, the rule of law, and political stability, the higher the degree of TEVA across nations. The results are important for policymakers to assess the likelihood of TEVA from a holistic perspective.     

The missing link? Finance,public services,and co-production: The case of social impact bonds (SIBs)

The authors explain why social impact bonds (SIBs) are an excellent—and probably the only—example of the finance–social services–co-production link. They show how SIBs can provide a functional linking mechanism in social service systems. Furthermore, they can help boost the innovation and sustainability of this system. The co-production concept is related to practice by studying two prison SIBs (HMP Peterborough in the UK and Rikers Island in the USA). They explain why co-production is relevant and how it works in SIBs.