Spin offs: Implications for corporate policies.

Management; Economy; Structure; Startups; Policy; Implications;

Spin-Offs. Implications for Corporate Policies

Corporate spin-offs are important corporate restructurings that are associated with significant positive abnormal stock returns at their announcement. Recent research has investigated the sources of these gains. There has been considerable empirical support for theories that argue that excessive diversity of the assets of a large firm gives problems. A spin-off separates diverse units of the firm and results in two companies that have dissimilar assets. This paper explores implications for the organization and optimal corporate policies of these new firms. I argue that because the assets of the two new companies are dissimilar, their optimal corporate policies and internal organization also should be different. The impossibility to implement these dissimilar optimal policies in the original firm likely has aggravated the problems leading to the spin-off.

(Why) Do we need Corporate Taxation?

Tax rates on corporate income have considerably come down in the process of tax competition and further pressures are evident. Against this background, the paper discusses possible benefits of corporate income taxation that may be at risk. In particular, the paper surveys the empirical evidence for a backstop function of the corporate income tax that allows preserving individual taxes.tax competition, corporate taxation

Tax policy and corporate borrowing

Taxation ; Public policy ; Corporations - Taxation ; Debt

Developer's Expertise and Dynamicsof Financial Innovation: Theory and Evidence

We study product innovation and imitation in the market of corporate underwriting with a dynamic model where client switching costs and the bankers’ expertise in deal structuring characterize the life cycle of a security. While the clientele loyalty allows positive rent extraction, the superior expertise can account for the documented market leadership of the innovator. As expertise on product structuring is acquired by imitators, the innovator’s market share advantage decreases. Also, the speed of entry by imitators increases for later generation products. Our predictions are consistent with well documented evidence on the market share leadership of innovators. We also present new evidence from equity-linked and derivative corporate products that supports the dynamic predictions of our learning model.Innovation and imitation, first-mover advantages, product differentiation, learning

Income Tax Incentives to Promote Saving

We examine six alternative plans which might be discussed in an effort to increase consumer savings through the personal income tax system in the United States. These plans attempt to affect savings through an increase in the real rate of return either by direct tax cuts on savings or by indexing tax rates against inflation. The paper presents estimates of static and dynamic resource allocation effects for the six plans, and compares them to results obtained in earlier work on the impacts of more sweeping reforms. A medium-scale numerical general equilibrium model is used which integrates the U. S. tax system with consumer demand behavior by household and producer behavior by industry.

The Economic Effects of Dividend Taxation

This paper tests several competing hypotheses about the economic effects of dividend taxation. It employs British data on security returns, dividend payout rates, and corporate investment, because unlike the United States, Britain has experienced several major dividend tax reforms in the last three decades. These tax changes provide an ideal natural experiment for analyzing the effects of dividend taxes. We compare three different views of how dividend taxes affect decisions by firms and their shareholders. We reject the"tax capitalization" view that dividend taxes are non-distortionary lump sum taxes on the owners of corporate capital. We also reject the hypothes is that firms pay dividends because marginal investors are effectively untaxed. We find that the traditional view that dividend taxes constitute a "double-tax" on corporate capital income is most consistent with our empirical evidence. Our results suggest that dividend taxes reduce corporate investment and exacerbate distortions in the intersectoral and intertemporal allocation of capital.

Tax Competition and Profit Shifting: On the Relationship between Personal and Corporate Tax Rates

The residence-based taxation of interest income in the EU faces the difficulty that taxpayers may evade taxation by holding bank accounts in other countries. The EU therefore makes considerable efforts to achieve cooperation among EU member states in order to improve tax enforcement. The present paper argues that international cooperation in tax enforcement may not be sufficient to implement an effective taxation of interest income. The reason is that taxpayers may also avoid income taxes by holding financial assets in the corporate sector. If corporate tax competition reduces corporate income tax rates below personal income tax rates, taxpayers will increasingly shift income from the personal to the corporate sphere. We show that this type of income shifting is empirically important. According to our results, a one percentage point increase in the personal income tax rate increases the fraction of private savings held within corporations by approximately 2.6 percentage points.