Dividend Taxation and Intertemporal Tax Arbitrage

We analyze the effects of changes in dividend tax policy using a life-cycle model of the firm, in which new firms first access equity markets, then grow internally, and finally pay dividends when they have reached steady state. We find that unanticipated permanent changes in tax rates have only small effects on aggregate investment, since macroeconomic dynamics are dominated by mature firms for which dividend taxation is not distortionary. Anticipated or temporary dividend tax changes, on the other hand, create incentives for firms to engage in inter-temporal tax arbitrage so as to reduce investors' tax burden. For example, a temporary tax cut--the type most likely to be enacted by policymakers--induces firms to accelerate dividend payments while tax rates are low, which reduces their cash holdings and makes them capital-constrained when large investment opportunities arise. This can significantly lower aggregate investment for periods after the tax cut

Animal spirits and credit cycles

In this paper we extend the behavioral macroeconomic model as proposed by De Grauwe (2012) to include a banking sector. The behavioral model takes the view that agents have limited cognitive abilities. As a result, it is “rational” to use simple forecasting rules and to subject the use of these rules to a fitness test. Agents are then driven to select the rule that performs best. The behavioral model produces endogenous and self-fulfilling movements of optimism and pessimism (animal spirits). Our main result is that the existence of banks intensifies these movements, creating a greater scope for booms and busts. Thus, banks do not create but amplify animal spirits. We find that increases in the equity ratios of banks tend to reduce the importance of animal spirits over the business cycle. The other policy conclusion we derive from our results is that the central bank has an important responsibility for stabilising output: output stabilization is an instrument to “tame the animal spirits”. This has the effect of improving the trade-off between inflation and output volatility

Examining the determinants of abnormal return volatility during seasoned equity offerings

Over the past few decades, firms in major international markets, including Australia, the United Kingdom, Hong Kong, the United States and Canada, have displayed a growing preference for equity financing through seasoned equity offerings (SEOs) in place of debt financing. Notably, the Australian market is among those that have experienced the most prolific issuances of SEOs because of the quick turnaround time, the freedom to choose the amount of capital to be raised and the control over the issuance price of SEOs. These benefits are some of the many reasons that SEOs have been favoured by firms as the primary mechanism for raising capital, particularly during periods of economic disruption. Given that the popularity of SEOs has increased exponentially among Australian Securities Exchange (ASX) listed firms, it is imperative that these firms also consider the effects of their SEO decision on their shareholders, from the perspective of return volatility. Return volatility is important to shareholders for it is among the most widely used metric to assess investment risk. During SEO announcements, the level of shareholder trading activity typically increases, which may transform normal levels of return volatility into abnormal levels. The increase in abnormal return volatility increases risk and may have negative consequences on a shareholder’s portfolio. Very few studies have examined the relationship between seasoned equity offerings (SEOs) and abnormal return volatility, which presents a research gap. Specifically, firms are unaware about the SEO types that induce abnormal return volatility and therefore will be unable to decide on the most appropriate type. To date, a firm’s main consideration is to choose an SEO type that will help it satisfy their capital needs, and thus, it disregards the likely impact of this decision on its existing shareholders. Hence, this thesis seeks to address this gap in the literature by providing a framework to help firms make SEO decisions that are more considerate to their shareholders. To achieve this goal, an event study methodology is employed to verify the presence of abnormal return volatility within ASX 200 firms in 1998–2020, by using multiple proxies. Overall, this thesis demonstrates that the SEO type and the sector in which a firm operates will both have a significant effect on abnormal return volatility during SEO announcements, which needs to be addressed. It highlights that some SEO types are more appropriate to use in general but may not necessarily be as appropriate specifically during economic disruption periods

금융 경제에 관한 연구

학위논문(박사) -- 서울대학교대학원 : 사회과학대학 경제학부, 2021.8. 김현석.금융 경제는 여러 기술의 발전과 함께 빠르게 성장하고 있다. 이러한 기술의 발전은 많은 사람들이 금융자산에 접근하기 쉽게 만들었고 이는 금융 경제가 실물 경제에 미치는 영향을 증가시키고 있다. 그러므로 금융 경제의 보다 정확한 영향을 분석하기 위해서는 많은 연구가 필요한 상황이다. 본 학위 논문은 금융 경제에 관한 세 개의 다른 주제로 금융 경제를 분석하는 것을 목적으로 한다. 첫 번째 주제는 채권시장의 개발이 통화 정책의 pass-through에 미치는 영향을 분석한 연구이다. 채권 시장의 발전 지표로 채권의 발행양을 GDP로 나누어 사용하였으며 연구의 결과에서 대출 금리에 대한 통화 금리의 pass-through가 채권 시장의 발전 정도에 따라 크게 영향을 받음을 확인할 수 있었다. 두 번째 주제는 불확실성 충격에 대한 주요 거시 변수들의 비대칭 반응을 연구한 내용으로서 Smooth local project (SLP) 방법을 이용하여 주요 거시변수들의 비대칭 반응을 실증 분석하고 실증 분석의 결과를 토대로 DSGE 모형에 불확실성 충격의 비대칭성을 calibration하였다. 모델 추정 결과 양의 불확실성 충격이 음의 불확실성 충격보다 지속성이 낮고 변동성이 높다는 사실을 확인하였다. 또한 가격 경직성과 위험 회피성은 이러한 불확실한 충경의 비대칭성에 영향을 주는 것으로 확인되었다. 세 번째 주제는 금융시장의 유출 효과를 고려한 경우 주식과 국고채 간의 동적 관계를 분석한 연구이다. 금융 시장의 유출 효과로서 위험 유출 효과와 금융 정보 유출 효과를 정의하고 이러한 유출 효과가 있는 경우 미국의 주식과 국고채 간의 관계를 실증 분석하였다. 연구의 결과를 통해 이러한 유출 효과가 두 시장의 관계에 유의미한 효과를 주는 것을 확인하였고 조건부 변동성과 상관 계수에 영향을 주는 것을 확인하였다. 이러한 발견은 금융 프토폴리오 투자자와 정부 정책 입안자에게 중요한 의미를 제공한다고 볼 수 있다.The financial economy has grown rapidly with technology development. Financial assets are becoming more accessible to people, and this is increasing the impact of the financial economy on the real economy. Thus, many studies are needed to analyze the more accurate impact of the financial economy. This dissertation aims to analyze the financial economy with three separate essays. The first chapter analyzes how bond market development affects the pass-through of monetary policy to bank lending rates by using panel data of 36 countries. As the measure of bond market development, we use the ratio of outstanding bonds to GDP. Results show that the degree of monetary policy pass-through to lending rates are significantly changed by bond market development. The effect of bond market development is robust under various specifications of the empirical model. The second chapter studies asymmetric responses of economic agents to the uncertainty shock. Using a smooth local projection (SLP) method, study shows that macro variables have asymmetric responses to the increasing and decreasing VXO shocks and calibrate the asymmetric uncertainty shock process in a DSGE model using the empirical result. Model estimation results show that a positive uncertainty shock have lower persistence and higher volatile than a negative uncertainty shock. Furthermore, price stickiness and risk aversion affect asymmetry of responses to uncertainty shocks. The third chapter analyzes the dynamic relationship between the US stock and treasury bonds while considering spillover effects. Moving average terms and stock volume changes are used to measure the risk spillover and financial information spillover, respectively. Empirical results show three important implications in US financial markets. First, the stock market return and volatility decrease the bond market return, whereas the bond market return and volatility have no effects on the stock return. Second, spillover effects are observed in US financial markets and spillover effects vary depending on market conditions. Third, spillover effects affect the conditional second moments relations between the stock and bond returns. The findings provide an important implication for financial portfolio investors and policy makers.CHAPTER 1. Bond Market Development and Monetary Policy Pass-Through to Bank Lending Rates １ 1.1. INTRODUCTION １ 1.2. DATA AND METHODOLOGY ５ 1.2.1. Empirical Methodology ５ 1.2.2. Data ６ 1.3. BASELINE MODEL RESULTS ９ 1.4. EXTENDED ANALYSIS １１ 1.5. CONCLUSION ２０ CHAPTER 2. Asymmetric uncertainty shocks in a DSGE model ２４ 2.1. INTRODUCTION ２４ 2.2. EMPIRICAL WORKS ２７ 2.3. DSGE MODEL ３２ 2.4. RESULT ４２ 2.5. FURTHER ANALYSIS ４３ 2.6. CONCLUSION ４５ CHAPTER 3. Dynamic relationships between stocks and treasury bonds with spillover effects: Evidence from US financial markets ４８ 3.1. INTRODUCTION ４８ 3.2. LITERATURE REVIEW ５０ 3.3. DATA ５３ 3.4. METHODOLOGY AND RESULTS ５４ 3.4.1. Univariate EGARCH (1,1)-M models ５４ 3.4.2. Multivariate EGARCH (1,1)-M models ５６ 3.5. CONCLUSIONS ６９ REFERENCES ７２ TABLES ７9 FIGURES １１０ APPENDIX １３５ ABSTRACT IN KOREAN １４２박

The Propensity to Split and CEO Compensation

We analyze the relation between the delta and vega of a chief executive officer’s (CEO) compensation and the propensity of the firm to engage in a split. Controlling for other well-known factors, we find that CEOs with compensation that has higher levels of delta are more likely to split their shares. Furthermore, the choice of split factor is inversely related to delta. Our results are economically significant: for the average (median) firm in our sample, a stock split results in a CEO wealth gain of $4.9 million ($84,000)

The Effect of Horizontal Inequity, Capacity for Budget Slack, and Severity of Peer Overstatement on Managerial Reporting Behavior

An ongoing stream of accounting research indicates that non-pecuniary factors significantly affect employees’ reporting behavior. This study investigates the behavioral effects of three non-pecuniary factors - horizontal pay inequity, capacity for budget slack, and severity of peer overstatement. The behaviors of interest are the employees’ level of honesty and whether or not they report a peer that is overstating. In the experiment, participants acted as division managers who request funding from the owner of a fictitious company to produce certain parts. In each period, participants were paired with a different fictitious peer and were required to make two decisions under a peer reporting system: (1) how much funding to request from the owner to complete the production task, and (2) whether to report their peers, who overstate their funding needs, to the owner. Participants’ total compensation was determined by their own decisions and the decisions made by their peers. The results suggest that employees are most honest about their funding requests when they are paid more than their peers and are least honest when they are paid less than their peers. Additionally, employees are most likely to blow the whistle on their peers who overstate their funding requests when they are paid less than their peers and are least likely to do so when they are paid the same as their peers. Furthermore, employees tend to create more budget slack when they have greater capacity for overstating their funding requests. Also, employees’ propensity to blow the whistle is positively associated with the severity of their peers’ overstatement. The results add to the stream of accounting research that integrates both economic and psychological theories to examine employees’ decision making in a multi-agent setting. More importantly, this study makes a contribution by testing the overpayment effect of horizontal inequity in an accounting setting. Also, the results enhance our understanding of the unintentional consequences of implementing a pay transparency policy

Predicting Forced Financial Restatement: Evidence from the Malaysian Capital Market

Historical precedent shows that forced financial restatements can have serious implications for the firm affected, investor confidence in financial markets and a country’s economic development more generally. The purpose of this study is to explore factors which affect the likelihood of forced financial restatements. This issue is particularly pertinent in the Malaysian context, as, despite repeated efforts by the government to improve the corporate governance of listed companies, weak regulatory enforcement and the influence of family groups and politicians give rise to continued concerns about financial reporting quality. This study uses the multivariate logit model to analyse firm characteristics which relate to forced financial restatement. The analysis was performed on the Malaysian listed companies from 2002 to 2012. Findings indicate that the likelihood of forced restatements was related to aggressive accounting practices. In addition, the presence of politically-connected shareholders or top executives, the proportion of independent directors on the board, firms’ decreasing level of internal fund and share price volatility were also related to an increased likelihood of forced restatement. More detail tests on the attributes of the different types of restatement show that the likelihood of income-increasing and zero-effect forced restatement event were affected by opportunistic earnings management practices. This contradicts with the results shown for forced income decreasing restatement as they do not imply aggressive accounting, but are more likely to result from mistakes or technical accounting matters, such as change in accounting policy. This study contributes to our understanding by examining a much wider range of financial and non-financial factors as possible determinants of forced restatements. Moreover, compared to prior research, this study explores forced income-decreasing, income-increasing, as well as zero-effect restatements to distinguish between earnings restatements that arise from related to opportunistic behaviour and those linked to accounting errors. Methodologically, this study further contributes by applying the penalised likelihood logit and structural equation modelling approach which are scarcely examined in accounting research, to determine factors affecting the likelihood of forced restatements. It was not possible to develop a valid predictive model for forced financial restatements which is recognised as a limitation to the study. However, the findings in this study do provide some insights into factors which relate to the likelihood of forced restatements, which should be useful for investors, analysts, auditors, and regulators

Corporate restructuring

We survey the empirical literature on corporate nancial restructuring, including breakup transactions (divestitures, spin-o s, equity carveouts, tracking stocks), leveraged recapitalizations, and leveraged buyouts (LBOs). For each transaction type, we survey techniques, deal nancing, transaction volume, valuation e ects and potential sources of restructuring gains. Many breakup transactions are a response to excessive conglomeration and reverse costly diversi cation discounts. The empirical evidence shows that the typical restructuring creates substantial value for shareholders. The value-drivers include elimination of costly cross-subsidizations characterizing internal capital markets, reduction in nancing costs for subsidiaries through asset securitization and increased divisional transparency, improved (and more focused) investment programs, reduction in agency costs of free cash ow, implementation of executive compensation schemes with greater pay-performance sensitivity, and increased monitoring by lenders and LBO sponsors. Buyouts after the turn of the century created value similar to LBOs of the 1980s. Recent developments include consortiums of private equity funds (club deals), exits through secondary buyouts (sale to another LBO fund), and evidence of persistence in fund returns. LBO deal nancing has evolved towards lower leverage ratios. In Europe, recent deals are nanced with less leveraged loans and mezzanine debt and more high-yield debt than before. Future research challenges include integrating analyses across transaction types and nancing mixes, and producing unbiased estimates of the expected return from buyout investments in the presence of limited data on portfolio companies that do not return to public status

Underpricing and direct public offerings: the Spotify direct listing case

After a review of the listing process and of the literature concerning the main indirect cost listing companies have to bear, shares underpricing. The paper aims at analysing this phenomenon in the context of direct public offerings. Therefore, a series of previous empirical study is first examined, and then the case of Spotify direct listing is discussed, comparing it also with a sample of contemporary internet-related traditional IPOs