A ROBUST ESTIMATION OF THE EFFECTS OF TAXATION ON CHARITABLE CONTRIBUTIONS

In contrast to earlier studies, recent research finds that charitable contributions are tax-price inelastic, suggesting that the itemized deduction for contributions loses more tax revenue than it increases in contributions. The estimates from parametric methods are similar to those in earlier studies that find that charity appears to be elastic with respect to the tax price. Because specification tests raise doubts about the consistency of these methods, the authors use a two-stage semi-parametric method and find that contributions are price inelastic. Contributions to social welfare organizations, however, are price elastic; their deductibility loses less in revenues than is contributed. (JEL C14 , C34 )     

Option Prices as Predictors of Equilibrium Stock Prices

The Black-Scholes option pricing model, modified for dividend payments, is used to calculate jointly implied stock prices and implied standard deviations. A comparison of the implied stock prices with observed stock prices reveals that the implied prices contain information regarding equilibrium stock prices that is not fully reflected in observed stock prices. The implications of this finding are discussed.     

Prompting the Benefit of the Doubt: The Joint Effect of Auditor‐Client Social Bonds and Measurement Uncertainty on Audit Adjustments

We design an incentivized experiment to test whether measurement uncertainty elevates the risk that social bonds between auditors and reporters compromise audit adjustments. Results indicate that, when audit evidence is characterized by some residual uncertainty, the adjustments our auditor‐participants require are sensitive to whether auditors have an opportunity to form a modest but friendly social bond with reporters. In contrast, although auditors do not adjust fully even when misstatements are known with certainty, social bonding has no effect in this scenario. Accordingly, our experiment contributes beyond the main effects of social bonding and measurement uncertainty demonstrated in prior research by showing that these forces interact. A practical implication is that regulators and practitioners should consider both the technical and the social challenges facing audits of complex estimates.     

The Success of Acquisitions: Evidence from Divestitures

This paper studies a sample of large acquisitions completed between 1971 and 1982. By the end of 1989, acquirers have divested almost 44% of the target companies. We characterize the ex post success of the divested acquisitions and consider 34% to 50% of classified divestitures as unsuccessful. Acquirer returns and total (acquirer and target) returns at the acquisition announcement are significantly lower for unsuccessful divestitures than for successful divestitures and acquisitions not divested. Although diversifying acquisitions are almost four times more likely to be divested than related acquisitions, we do not find strong evidence that diversifying acquisitions are less successful than related ones.