104 research outputs found
How Prevalent is Tax Arbitrage? Evidence from the Market for Municipal Bonds
No full textAlthough tax arbitrage is central to the literatures on tax capitalization, implicit taxes, and even capital structure, there is little empirical evidence of the extent to which firms actually engage in tax arbitrage. This paper provides some evidence on the topic by focusing on a simple and observable corporate arbitrage strategy in the market for municipal bonds. It poses a puzzle for the literature, however, in that we find little evidence of municipal bond tax arbitrage by non-financial corporations. The overwhelming majority of firms are not engaging in the arbitrage at all and even among those engaged in arbitrage, many firms do less than a safe-harbor amount allowed by the tax authorities. Such a pattern is consistent with the presence of both fixed and marginal (i.e., that depend on size of the position) costs of arbitrage, though we cannot observe what those costs are.
Does Shareholder Litigation Matter?
No full textThis study examines whether an unexpected shock to the risk of class-action lawsuits filed under securities laws affects the level of discretionary revenues, the market reaction to unexpected revenues, and the likelihood of restatements. I identify a court decision that reduced the risk of shareholder litigation for firms headquartered within a single jurisdiction. Subsequent to the decision, the likelihood of a restatement and the level of discretionary revenues increased while the market reaction to unexpected revenues declined for firms headquartered in this jurisdiction relative to firms headquartered in other jurisdictions. Further, these changes were driven primarily by firms that faced the highest risk of shareholder litigation. Overall, results indicate that the risk of shareholder litigation constrains managers from making opportunistic reporting choices. This study is relevant to the global policy debate about class-action litigation as a mechanism to regulate securities markets
The cost of private debt covenant violation
No full textThis study quantifies costs that firms are willing to incur to avoid violation of private debt covenants. The results indicate that as firms approach covenant violation they engage in income-increasing earnings management, which increases their tax liability. By estimating the extent of income-increasing activities and the additional tax costs incurred, this study arrives at a lower-bound estimate of the cost of violating private debt covenants. The mean (median) firm with relatively tight debt covenants increases its current tax liability by an amount equivalent to increasing the cost of debt financing by between 12.92 (10.72) and 22.72 (12.81) basis points (where firms with relatively loose debt covenants serve as the baseline). The magnitude of this estimate indicates that the expected costs of covenant violation are meaningful. Combined with recent evidence that private debt covenant violations occur frequently (Dichev and Skinner, 2002; Roberts and Sufi, 2007a), this implies debt covenants and expected violations are economically important
The effects of dividend taxation on short selling
No full textI examine the effects of dividend taxation on the primary parties involved in a short sale: the lender of the stock and the short seller. Using a proprietary dataset of short lending fees and quantities, I find evidence that the supply of shortable shares decreases and lending fees increase around the dividend record date. Moreover, I find greater increases in lending fees and decreases in loan supply for lenders that are sensitive to dividend taxation. The loan fee increase and loan supply decrease are consistent with a tax-induced shift in the loan supply curve. In addition, I examine effects on short sellers of the incomplete price drop on the ex-date. I find a significant decrease in short volume before the ex-date followed by a significant increase after the ex-date. This finding is consistent with short sellers delaying trading to avoid the cost of an incomplete price drop. To my knowledge, this is the first paper to examine the effects of dividend taxes in the domestic short selling market
The Changing Role of Auditors in Corporate Tax Planning
No full textThis 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.
Does Bank Opacity Enable Regulatory Forbearance?
No full textRegulators are charged with closing troubled banks, but can instead practice forbearance by allowing these troubled banks to continue operating. This paper examines whether bank opacity affects regulators' ability to practice forbearance. Opacity inhibits non-regulator outsiders from accurately assessing bank risk, potentially allowing regulators to forgo intervention. Employing a sample of U.S. commercial banks during the recent crisis, I find that bank opacity is positively associated with a new measure of forbearance and negatively associated with the probability of failing during the crisis. Cross-sectional results are consistent with opacity being more important for forbearance when (1) regulators' incentives are stronger (as measured by bank connectedness) and (2) outsiders' incentives to monitor are stronger (as measured by the proportion of deposits that are uninsured). These results suggest that opacity enables regulators to forbear on connected banks to prevent financial sector contagion and to disguise forbearance from uninsured creditors. This study contributes to the literature on the role of accounting in forbearance by being the first to show the effect of bank-level opacity on the regulator's decision to intervene or forbear.Doctor of Philosoph
Targeted Delivery of Antioxidant Nanoparticles to Inhibit Restenosis
No full textCardiovascular disease is the leading cause of death globally, often resulting from the development of atherosclerosis. Common surgical interventions, such as balloon angioplasty, repeatedly fail due to the re-narrowing of an artery over time, a process called restenosis. Neointimal hyperplasia, the proliferation and migration of cells that leads to restenosis, is driven by reactive oxygen species (ROS). In natural response to injury, macrophages target inflammation in the vasculature. This response provides a strategy for targeted delivery of therapeutics, but it is unknown whether macrophages can deliver antioxidant enzymes to sites of arterial injury. We hypothesize that macrophages can be loaded with antioxidant enzyme nanoparticles (NPs) to deliver enzymatically active catalase (CAT) or superoxide dismutase (SOD) in order to decrease ROS and hence, inhibit neointimal hyperplasia. Using dynamic light scattering (DLS) and nanoparticle tracking analysis (NTA), catalase NPs and SOD NPs size and dispersity were characterized. Encapsulated enzymes were enzymatically active and stable for 7 days, indicating that nanoparticles do not inhibit enzymatic activity. Macrophage uptake of enzyme-loaded NPs was assessed using fluorescence microscopy. Uptake by murine macrophages (RAW 264.7) peaked at 2 hours with macrophages engulfing more fluorescently-labeled enzyme-loaded NPs than free enzyme. Using macrophages with antioxidant enzyme-loaded nanoparticles is a viable approach to deliver active catalase or SOD, resulting in a targeted delivery system for sites of restenosis. This strategy would present a great advantage to the medical world, as preparation of targeted drug therapy could be executed ex vivo with the potential to be implemented back into the patient.Bachelor of Scienc
A Value Relevance Examination of the Current Leasing Standard
No full textIn the wake of the prominent accounting scandals of the past several years, investors and standard setters are demanding increased corporate transparency. Nowhere is the demand for transparency more salient than with off-balance-sheet financing, of which lease accounting plays a major role. At the end of 2004, total rental commitments by U.S. firms from off balance-sheet operating leases exceeded $1 trillion. As standard setters reconsider leases as part of their broad reexamination of off-balance-sheet financing, they do so without the benefit of empirical research documenting whether capital market participants find the current leasing standard value relevant. This paper examines whether as-if capitalized operating lease liabilities and capital lease liabilities are both relevant and sufficiently reliable to be priced and explores whether equity investors value operating and capital leases differently. The results are consistent with the market viewing both operating and capital leases as economic liabilities of the firm. However, the results also indicate that capital market participants price operating and capital lease liabilities differently, consistent with the bright-line tests of the current leasing standard identifying economic differences in operating and capital leases. Thus, continuing to require lease disclosures by different lease classifications would assure that equity investors will not suffer from a loss of value relevant information in the pricing of leases
Discussion of Firms' Off-Balance Sheet and Hybrid Debt Financing: Evidence from Their Book-Tax Reporting Differences
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