The Changing Role of Auditors in Corporate Tax Planning

This paper examines changes in the role that auditors play in corporate tax planning following recent events, including the well-known accounting scandals, passage of the Sarbanes-Oxley Act, and regulatory actions by the SEC and PCAOB. On the whole, these events have increased the sensitivity to and scrutiny of auditor independence. We examine the effects of these events on the market for tax planning, in particular the longstanding link between audit and tax services. While the effects are recent, they are already being seen in the data. Specifically, there has already been a dramatic shift in the market for tax planning away from obtaining tax planning services from one's auditor. We estimate that the ratio of tax fees to audit fees paid to the auditors of firms in the S&P 500 decline from approximately one in 2001 to one-fourth in 2004. At the same time, we find no evidence of a general decline in spending for tax services. In sum, the evidence indicates a decoupling of the longstanding link between audit and tax services, such that firms are shifting their purchase of tax services away from their auditor and towards other providers.

Did Dividends Increase Immediately After the 2003 Reduction in Tax Rates?

The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduces the maximum statutory personal tax rate on dividends from 38.1 percent to 15 percent. This study analyzes dividend declarations in the quarter following passage. Aggregate dividends rose by 9 percent when boards of directors first met following enactment. Consistent with the dividend changes being tax-motivated, they are increasing in the percentage of the firm held by individuals. Dividend changes also increased with insider ownership, consistent with managers acting in their own interests. However, these results are limited primarily to firms that made large, special dividends. We find little evidence of an increase in regular, quarterly dividend payments.

Capital Gains Taxes and Stock Reactions to Quarterly Earnings Announcements

This paper examines the impact of capital gains taxes on equity pricing. Examining three-day cumulative abnormal returns for quarterly earning announcements from 1983-1997, we present evidence consistent with shareholders' capital gains taxes affecting stock price responses. To our knowledge, this is the first study to link shareholder taxes and share price responses to earnings releases. The results imply that shares trade at higher (lower) prices when individual investors face incremental taxes (tax savings) created by selling appreciated (depreciated) shares before they qualify for long-term treatment. Unlike prior studies that have focused on price reactions in settings where shareholder taxes are unusually salient (e.g., tax law changes, turn-of-the-year trading, or tax-sensitive transactions), this study finds the imprint of capital gains taxes in a more general setting.

Did Firms Substitute Dividends for Share Repurchases after the 2003 Reductions in Shareholder Tax Rates?

This paper tests whether firms altered their dividend and share repurchase policies in response to the 2003 reductions in shareholder tax rates. We predict that firms substituted dividends for repurchases, because the reduction in dividend tax rates exceeded the reduction in the capital gains tax rates. As expected, we find substitution and find that it is increasing in the percentage of the company owned by individual investors, the only shareholders affected by the legislation. These findings are consistent with boards of directors considering the tax preferences of individual stockholders (particularly officers and managers) when setting dividend and share repurchase policies.

The Impact of Capital Gains Taxes on Stock Price Reactions to S&P 500 Inclusion

This paper contributes to our understanding of the determinants of price responses to inclusion in the S&P 500 by providing evidence consistent with capital gains tax planning impacting stock reactions. Tests are conducted on 426 additions from 1978-1999. We regress the returns on the first trading day following announcement on a capital gains tax measure and controls. The evidence is consistent with the share prices of appreciated firms being temporarily bid up to compensate individual shareholders for any unanticipated capital gains taxes triggered when they sell to index funds and the share prices of depreciated firms being temporarily diminished when individual shareholders sell because buyers and sellers share the tax savings associated with deductible capital losses. We infer from these findings that in rebalancing their portfolios after S&P 500 additions, index funds share individual shareholders' capital gains taxes (or tax savings) through sales price adjustments. Consistent with temporary price pressure, further analysis shows that much of the price reaction unwinds over the following week's trading. Finding that personal capital gains taxes affect stock returns in a setting that does not bias toward taxes mattering suggests that capital gains tax capitalization may be a pervasive feature in equity valuation.

Capital Gains Holding Periods and Equity Trading: Evidence from the 1998 Tax Act

This paper exploits an unusually powerful setting to explore a choice many individual investors face regularly the decision to sell today or postpone selling until lower rates are available in the future. We examine trading volume and stock returns around the 1998 reduction in the holding period required for individual investors to receive the most favorable long-term capital gains tax rate. For firms whose initial public shareholders were affected by the legislation, we find trading volume increasing and share returns decreasing in past price performance on the day the legislation was publicly disclosed. The results are consistent with capital gains holding periods distorting markets sufficiently that if investors are permitted to liquidate appreciated positions at favorable rates, enough will sell immediately to move prices. To our knowledge, this is the first study linking trading volume and security prices to a change in capital gains holding periods.

Effects of breed of sire on carcass composition and sensory traits of lamb

This experiment was conducted to compare meat quality and carcass composition of a diverse sampling of sheep breeds. Finnsheep, Romanov, Dorper, White Dorper, Katahdin, Rambouillet, Suffolk, Texel, Dorset, and Composite (½ Columbia rams to ¼ Hampshire × ¼ Suffolk) rams were mated to mature Composite ewes. Lambs (n = 804) were reared intensively, grain fi nished, and serially harvested over a 63-d period. Average harvest age was 216 d and average HCW was 30.7 kg. At a common harvest age, progeny of Suffolk sires were heavier than progeny of all other breeds (P \u3c 0.05) and their carcasses were heavier (P \u3c 0.05) than progeny of all other breeds, except White Dorper and Dorper. Progeny of Finnsheep and Romanov sires had lighter (P \u3c 0.05) carcasses than progeny of all other breeds. Progeny of Texel, Suffolk, White Dorper, and Dorper sires had larger (P \u3c 0.05) LM area than all other breeds. Progeny of Finnsheep and Romanov sires had smaller (P \u3c 0.05) LM area than all other breeds. Fat thickness at the 12th rib was greater (P \u3c 0.05) for progeny of Dorper sires than those of all other breeds, except White Dorper and Katahdin. Fat thickness at the 4th sacral vertebrae was greater (P \u3c 0.05) for progeny of White Dorper and Dorper sires than those of all other breeds. On a carcass weight-constant basis, progeny of Suffolk sires had a lesser (P \u3c 0.05) percentage of ether-extractable carcass fat than progeny of all other breeds, except Texel. Regardless of harvest endpoint (age-constant or HCW-constant), LM of progeny of Finnsheep and Romanov sires contained a greater (P \u3c 0.05) percentage of intramuscular fat and received greater (P \u3c 0.05) marbling scores than Rambouillet, Suffolk, Texel, Dorset, or Composite. Regardless of harvest endpoint, progeny of Finnsheep, Romanov, and Katahdin sires had smaller LM slice shear force values and greater trained sensory panel tenderness ratings at 7 d postmortem than did progeny of Composite, Suffolk, and Dorset sires (P \u3c 0.05). At an age-constant basis, small differences (P \u3c 0.05) were observed among breeds for lamb flavor intensity scores; however, when means were adjusted to a carcass weight-constant basis, breed of sire did not affect flavor intensity or off-flavor scores. These results document that each breed has relative strengths and weaknesses across traits, and that no single breed excels for all growth, carcass, and sensory traits

Biochemical and Structural Effects of Rigor Mortis-Accelerating Treatments in Broiler \u3ci\u3ePectoralis\u3c/i\u3e

This study was conducted to elucidate the mechanism of action of two selected rigor mortis-accelerating treatment systems employed in the prevention of the toughness associated with early-harvested (1 h post-mortem) broiler Pectoralis muscle. The treatments included 14 min of low voltage electrical stimulation (110 V, 1 A, pulsing 1 s on and 1 s off) combined with high temperature conditioning (39 C) and muscle tensioning (LV + HTC + MT); a 15-s high voltage stimulation (440 V, 1 A pulsing 2 s on and 1 s off) combined with muscle tensioning (HV + MT); and a control simulating commercial broiler processing practices. The rigor-accelerating treatments reduced pH and increased R-value (inosine:adenosine ratio) at 1 h post-mortem, but only the LV + HTC + MT treatment reduced sarcomere shortening. Both rigor treatments reduced the amount of measurable myofibrillar fragmentation. Cathepsin B and B + L activities were not affected by the rigor treatments. Calpain I activity was not detectable in any 24-h post-mortem sample. Calpain II activity at 24 h post-mortem was greater in muscles receiving HV + MT than from the LV + HTC + MT or control carcasses, but was reduced in all muscles by 24 h postmortem. An SDS-PAGE indicated a 30-kDa polypeptide that was absent at death and appeared in control and LV + HTC + MT muscles but to a lesser extent in HV + MT muscles. These results suggested that the LV + HTC + MT treatment has a greater tenderizing effect than the HV + MT treatment because the former achieves a better balance between reduced sarcomere shortening and myofibrillar fragmentation

Biochemical and Structural Effects of Rigor Mortis-Accelerating Treatments in Broiler \u3ci\u3ePectoralis\u3c/i\u3e

This study was conducted to elucidate the mechanism of action of two selected rigor mortis-accelerating treatment systems employed in the prevention of the toughness associated with early-harvested (1 h post-mortem) broiler Pectoralis muscle. The treatments included 14 min of low voltage electrical stimulation (110 V, 1 A, pulsing 1 s on and 1 s off) combined with high temperature conditioning (39 C) and muscle tensioning (LV + HTC + MT); a 15-s high voltage stimulation (440 V, 1 A pulsing 2 s on and 1 s off) combined with muscle tensioning (HV + MT); and a control simulating commercial broiler processing practices. The rigor-accelerating treatments reduced pH and increased R-value (inosine:adenosine ratio) at 1 h post-mortem, but only the LV + HTC + MT treatment reduced sarcomere shortening. Both rigor treatments reduced the amount of measurable myofibrillar fragmentation. Cathepsin B and B + L activities were not affected by the rigor treatments. Calpain I activity was not detectable in any 24-h post-mortem sample. Calpain II activity at 24 h post-mortem was greater in muscles receiving HV + MT than from the LV + HTC + MT or control carcasses, but was reduced in all muscles by 24 h postmortem. An SDS-PAGE indicated a 30-kDa polypeptide that was absent at death and appeared in control and LV + HTC + MT muscles but to a lesser extent in HV + MT muscles. These results suggested that the LV + HTC + MT treatment has a greater tenderizing effect than the HV + MT treatment because the former achieves a better balance between reduced sarcomere shortening and myofibrillar fragmentation

Selection for genetic markers in beef cattle reveals complex associations of thyroglobulin and casein1-S1 with carcass and meat traits

Genetic markers in casein (CSN1S1) and thyroglobulin (TG) genes have previously been associated with fat distribution in cattle. Determining the nature of these genetic associations (additive, recessive, or dominant) has been diffi cult, because both markers have small minor allele frequencies in most beef cattle populations. This results in few animals homozygous for the minor alleles. Selection to increase the frequencies of the minor alleles for 2 SNP markers in these genes was undertaken in a composite population. The objective was to obtain better estimates of genetic effects associated with these markers and determine if there were epistatic interactions. Selection increased the frequencies of minor alleles for both SNP from0.10). Additive, dominance, and epistatic SNP association effects were estimated from genotypic effects for adjusted fat thickness and predicted meat tenderness. Adjusted fat thickness showed a dominance association with TG SNP (P \u3c 0.06) and an epistatic additive CSN1S1 × additive TG association (P \u3c 0.03). For predicted meat tenderness, heterozygous TG meat was more tender than meat from either homozygote (P \u3c 0.002). Dominance and epistatic associations can result in different SNP allele substitution effects in populations where SNP have the same linkage disequilibrium with causal mutations but have different frequencies. Although the complex associations estimated in this study would contribute little to within-population selection response, they could be important for marker-assisted management or reciprocal selection schemes