When are preferred shares preferred? Theory and empirical evidence

This paper demonstrates that preferred stock may arise as an optimal security in a tax-induced equilibrium. This result is driven by graduated tax schedules and by uncertainty. In a more general sense, our results can be interpreted as a template for including any security with a different tax treatment in a firm's capital structure. The first part of the paper demonstrates that the Miller equilibrium framework can accommodate more than two securities if different investor classes are taxed differently on each security and the tax schedule for each investor group is upward sloping. We then simplify the tax schedule, but introduce uncertainty, which implies the possibility of bankruptcy and the possible loss of tax shelters. The interaction of tax rates and seniority now affects the contribution of each security to after-tax firm value, as in some states the firm may not be able to pay either interest (or dividends) or even principal to its various claimholders. It is shown why and how these features, i.e. the various tax rates and seniority, determine the financing equilibrium, which is obtained by equating the expected marginal tax benefit of all securities. We demonstrate that non-profitable firms will tend to issue preferred shares whereas profitable firms will not find preferred stock advantageous in our framework. Comparative statics with respect to various tax rates are derived as well. These predictions are tested using a large sample of firms for the last 25 years. The empirical testing broadly confirms the theoretical predictions.     

When destructive deviance in the workplace becomes a liability: a decisional behavioral model

In recent years destructive deviant behavior in organizations has drawn increasing attention. However, surprisingly little work has been devoted to assessing when the economic value of deviant behavior is tolerable (i.e., the benefits from employing the deviant worker exceed the financial costs of his/her deviance) and when it becomes unbearable (i.e., the financial cost of the deviance exceeds the benefits accrued from his/her employment). The purpose of the present paper is to introduce a mathematical model which may resolve this lacuna. In addition, a simulation was conducted and its results were reported in order to illustrate the usefulness of the proposed mathematical model. In conclusion it is suggested that the present model be further examined empirically in the real workplace.