Preferential corporate income tax treatment: Valuation in the market portfolio

In the setting of the market portfolio, the impacts of preferential corporate income tax treatments through the valuational reduction for risk are opposite to and offset the impacts through the expected proceeds. This suggests that focusing on the absolute valuation of tax-favored firms results in the undermeasurement of implicit taxes on returns on investments in tax-favored firms and the relative valuation with reference to fully taxed (i.e., tax-disfavored) benchmark firms be used. In addition, corporate income taxes imposed on entities and capital income taxes imposed on investors have opposite valuational effects through the endogenously derived market-aggregate aversion to risk.     

Brand royalty flows within large business groups: The effect of holding company structure and related party transactions committees

This study investigates the intragroup flows of brand royalties within large Korean business groups, known as chaebols. We find that member firms pay a greater amount of brand royalties when the business groups they are part of adopt a holding company governance structure, consistent with the bitter denunciation that chaebols transfer wealth from member firms to holding companies over which they have direct control. However, member firms pay a smaller amount of brand royalties when their related-party transactions (RPTs) are monitored by a designated RPT committee on the board of directors. The results show that monitoring RPTs is effective in mitigating the alleged unethical wealth transfer through excessive brand royalties within large business groups. Our study adds to the literature on RPTs by shedding new light on brand royalty, specifically by illustrating how intragroup brand royalties are determined and charged to member firms, and by introducing the RPT committees as a new internal governance mechanism to discourage abusive RPTs.