THE IMPACT OF TAXATION ON THE CAPITAL BUDGETING DECISION OF CORPORATE GROUPS

The United Kingdom Tax system is not neutral with respect to a Company’s investment and financing decisions, that is incentives and disincentives to invest in particular projects or use particular types of financing arise through the imposition of taxation. Such biases may increase or decrease the value of capital projects, and if a company is to be certain of making accurate investment decisions the incremental tax flows arising due to the project must be included in the evaluation. The tax flows arising through the acceptance of a project may differ depending on the company's or group's tax profile, and therefore the overall tax position of the company or group must be considered. The thesis explains the legislation relating to the taxation of corporate groups and suggests that because the tax system is so complicated, a computerised model is probably necessary. The author's computerised model is developed and tested in the thesis, comparing evaluations conducted using the procedures and assumptions of groups in the surveys, with those of the simulation model. It is shown that both understatements and overstatements occur through incorrectly allowing for taxation. The results of two empirical surveys are presented. The first, a postal survey, discusses the methods used by companies to incorporate tax in their project appraisals, and the second, based on interviews, provides a review of the whole capital budgeting process.University of Asto

It’s OK to pay well, if you write well: The effects of remuneration disclosure readability

We examine whether, and how, shareholders’ votes in the Say-on-Pay (SOP) are affected by the readability of the Compensation Discussion and Analysis (CD&A). Despite the SEC’s Plain English requirement, qualitative disclosures on executive remuneration are generally long and complex. Extant evidence on whether low readability results in higher or lower shareholder dissent in the SOP however is ambiguous. We resolve this debate by demonstrating that the effects of readability on SOP voting are heterogeneous; while obfuscation may reduce dissent when CEO compensation is close to ‘normal’ levels, diminished readability results in increased scepticism when pay levels are clearly excessive. The moderating role of readability is most pronounced for firms with less sophisticated shareholders, consistent with readability acting as a heuristic cue. Our results are robust to propensity score matching, and are less pronounced (1) when shareholders have less time to review the CD&A, and (2) when shareholders are distracted by competing AGMs, suggesting they are driven by readability, directly. Overall, our results highlight that greater use of Plain English in remuneration disclosures can have a substantial persuasive impact on shareholders

Dividend valuation, trading and transactions costs: the 1997 partial abolition of dividend tax credit repayments

An earlier version of this article appeared as Accounting Working Papers 04/08Although UK resident tax-exempt shareholders lost the right to repayment of tax credits oil dividends paid by UK resident companies in July 1997, they could continue to receive tax credit repayments in respect of dividend, received from Irish resident companies until December 1998. In July 1997 the rate of tax credit on Irish companies' dividends was 21%, and this was reduced to 11% in December 1997. We obtain insights into the incentives and behavior of UK tax-exempt investors in response to these changes in the relative 'tax attractiveness' of investments in Irish resident companies. We find that only at its highest rate, 21%, was the level of dividend tax credit on Irish companies' dividends sufficient to induce changes in UK tax-exempt shareholders' investment strategies: and that the propensity lot dividend capture by tax-exempt investors is heightened when the dividend tax credit yield is of the order of 0.8% or more and dividend yield is of the order of 2.6% or more

Academic performance and financial forecasting performance: a survey study

In a survey of forecasting stock prices over 13 months, we find better academic performance is significantly associated with smaller absolute forecasting errors, a lower propensity to be overconfident and narrower prediction intervals. The latter two findings are surprising as one would expect that less overconfident forecasters are more likely to make wider prediction intervals. Such superior forecasting ability of good academic performers may help explain why smart investors perform better in financial markets

Heterogeneous effects of the SEC's securities offering reform

The SEC’s Securities Offering Reform (SOR) was intended to address information problems prior to Seasoned Equity Offerings (SEO), thereby mitigating the problem of SEO overpricing. Consistent with the propensity of overpricing increasing with idiosyncratic stock return volatility (IVOL), we find greater capital market benefits from SOR for high IVOL issuers. Counter to concerns that SOR also enables issuers to hype their stock, we find no evidence of market conditioning following SOR, even among high IVOL issuers