nonverifiability noncontractibility and ownership determination models in foreign direct investment with an application to foreign operations in japan abstract firms intangible assets are important inputs for their foreign operations inputs of intangible assets and the resulting output are often not contractible in that neither precise use of such inputs nor potential products which can be produced by taking advantage of such inputs can be completely delineated in a contract where such incomplete contracts prevail control of residual rights becomes essential for protecting firms intangible assets ownership is often used to control residual rights in international operations in this paper we present a few interrelated models of ownership determination for firms international operations we show that a firm s ownership share in its foreign operation reflects the importance of the firm s intangible assets used in the operation and the resulting bargaining power relative to its local partners we test our theoretical implications using data on foreign firms manufacturing operations located in japan our empirical results are consistent with theoretical predictions

pro competitive effects of trade reform results from a cge model of cameroon abstract how likely is trade liberalization to produce efficiency gains in the presence of imperfect competition scale economies and higher than average wages in the modern sectors all common features in developing economies these features create a potential conflict to the extent that traditional notions of comparative advantage lead us to expect that the modern sectors will be squeezed with liberalization in this paper we investigate this issue by using an applied general equilibrium model calibrated to cameroonian data under perfect competition we find that the welfare effect is a wash since the beneficial consequence of expanded imports is offset by the reduction in employment in the modern high wage sectors under imperfect competition by contrast trade liberalization produces welfare gains of the order of 1 to 2 percent of income the key is the pro competitive effect of liberalization domestic firms in the modern sectors now perceive themselves as facing a higher elasticity of demand which spurs them to increase production

taxes on tax exempt bonds implicit tax rates priced in the cross section of municipal bonds are approximately two to three times as high as statutory income tax rates with implicit tax rates close to 100 using retail trades and above 70 for interdealer trades these implied tax rates can be identified because a portion of secondary market municipal bond trades involves income taxes after valuing the tax payments market discount bonds which carry income tax liabilities trade at yields around 25 basis points higher than com parable municipal bonds not subject to any taxes the high sensitivities of municipal bond prices to tax rates can be traced to individual retail traders dominating dealers and other institutions the issue of how taxes affect asset prices is an important issue in finance accounting and economics in theoretical models examining the effect of taxes

synergy and investment efficiency effects of trade and labor market distortions abstract an alternative mechanism by which trade and labor market distortions affect national income is introduced namely the effects of these distortions on the efficiency of investment for the typical structure of protection of developing countries the income losses due to reduced investment efficiency caused by trade distortions are likely to be many times larger than conventional losses the potential synergistic negative effects of combining trade and labor market distortions commonly observed in developing countries are also emphasized the main conclusion is that income losses of even moderate trade and labor distortions are likely to be much greater than usually presumed

north south lending and endogenous domestic capital market inefficiencies abstract we develop an open economy model of intertemporal trade under asymmetric information capital market imperfections are endogenous and depend on a country s stage of economic development relative to the perfect information benchmark north south capital flows are dampened and possibly reversed and world interest rates are lower whereas riskless rates are equalized across borders the domestic loan rate is higher in poorer countries the model can be applied to a number of policy issues including the debt overhang problem the indexation of foreign public debts and the effect of income distribution on growth

time variation of ex dividend day stock returns and corporate dividend capture a reexamination this paper documents some empirical facts about ex day abnormal returns to high dividend yield stocks that are potentially subject to corporate dividend capture we find that average abnormal ex dividend day returns are uniformly negative in each year after the introduction of negotiated commission rates and that time variation in ex day returns during the negotiated commission rates era is consistent with corporate tax based dividend capture ex day returns are more negative when the tax advantage to corporate dividend capture is greatest and more positive when increases in transaction costs and risk reduce incentives to engage in corporate tax based dividend capture copyright the american finance association 2000

the economics of joint ventures in less developed countries the paper examines the microeconomic partial equilibrium behavior of joint ventures established between transnational corporations and domestic partners in less developed countries it focuses on issues relating to resource allocation and profit distribution under various institutional scenarios the analysis places special emphasis on the role of bargaining power transfer pricing stock ownership and profit shares of the parties and the responsiveness of joint ventures to national development goals some of the results apply to wholly owned subsidiaries of transnational corporations local firms and licensing arrangements which emerge as special cases

host country policy transfer pricing and ownership distribution in international joint ventures a theoretical analysis abstract this paper develops a simple model of an international joint venture in which the ownership shares are endogenously determined as the outcome of nash bargaining between a multinational firm and a host firm it shows how tax subsidy policy by the host country s government and transfer pricing of inputs by the multinational firm may influence the equity distribution of the joint venture insofar as the optimal level of these policies is dependent on the primitives the model generates empirical hypotheses regarding the impact of the primitives on the equity distribution

contractual incompleteness and the optimality of equity joint ventures firms engaged in the pooling of complementary skills often choose the equity joint venture ejv over alternative profit sharing arrangements this paper addresses the issue of how equity shares are different from profit shares it is shown that in settings of contractual incompleteness marketable equity ownership when compared to non transferable profit sharing contracts provides better ex ante incentives to the parties involved by mitigating ex post hold up problems among other things the prevalence of the 51 49 or 50 50 ejv in which one party has 51 percent or 50 percent equity shares is explained

reduction of constraints on arbitrage trading and market efficiency an examination of ex day returns in hong kong after introduction of electronic settlement previous research documents positive ex dividend day returns in excess of one percent in the unique institutional setting of hong kong where neither dividends nor capital gains are taxed short term arbitrage trades around the ex day were hampered by physical settlement procedures after the recent switch to an electronic settlement system which enables such trades ex day abnormal returns have declined to an insignificant 0 17 percent this drop is more pronounced for high yield stocks which are more likely to attract dividend capture trading the evidence points to the crucial role of short term traders in ensuring the pricing efficiency of financial markets the role of short term traders in financial markets is a matter of considerable controversy the debate on this issue has heightened in the wake of the recent asian currency crisis which some governments blamed on the activities of short term traders critics contend that short term traders engage in speculation leading to excessive and debilitating volatility in market prices others argue that short term traders perform a useful role by increasing valuable liquidity berkman and eleswarapu 1998 report that regulatory changes on the bombay stock exchange curbing short term trading had a measurably adverse impact on asset values supporters of short term traders also argue that these traders make a key contribution to the efficiency of financial markets by constantly scouring the markets for arbitrage opportunities this study examines the impact of the

market valuation of tax timing options evidence from capital gains distributions we examine a distribution that is taxed as a capital gain rather than as a dividend since the distribution induces a realized capital gain while the price change is an unrealized gain ex day return behavior provides evidence of the value of tax timing capital gains we show that investors are compensated 7c in unrealized gains for each dollar of realized capital gains that is 1 of realized capital gains is equivalent to 93c of unrealized gains an investor with a tax rate on realized gains of 15 has an effective tax rate on unrealized capital gains of 8 6 capital gains taxes can be deferred until assets are sold this feature provides the investor who purchases a security with an option regarding the timing of the realization of capital gains and losses this option can be used to lower one s expected tax liability even if capital gains tax rates remain constant for different holding periods an investor who delays the realization of a gain effectively enjoys compound returns on the postponed taxes if capital losses are tax deductible or partially tax deductible tax timing is even more valuable since investors can follow the strategy of selling stocks with capital losses early while postponing the sale of winners recent evidence lends support to the contention that some investors respond to this tax timing option for example odean 1998 shows that u s investors are more likely to sell losers in december than other months similarly grinblatt and keloharju 2002 show that at the end of the tax year finnish investors are more likely to realize losses than gains this type of tax motivated trade seems to affect market returns as shown by poterba and weisbenner 2001 who demonstrate that end of year tax loss selling is related to return variation in the month of january

the market valuation of cash dividends abstract this paper re examines the case of citizens utilities a firm with one class of common stock which pays stock dividends and one which pays taxable cash dividends john long s 1978 study of the two shares relative prices suggests that investors may prefer cash dividends to equal sized stock dividends this paper finds that the cash dividend share s ex day price decline is less than their dividend payment stock dividend shares fall by nearly their full dividend the disparity between ex day dividend valuation and the observed prices of the two shares is inconsistent with some explanations of the demand for cash dividends

a theory of joint venture life cycles abstract in this paper we provide a dynamic theory of joint venture life cycle that relies on synergy organisational learning and moral hazard we demonstrate that depending on parameter values the outcome may involve any one of the following stable joint venture formation joint venture formation followed by breakdown or cournot competition in all the periods we also provide some interesting welfare results

ex dividend day stock price behavior discreteness or tax induced clienteles abstract since prices are constrained to discrete tick multiples while dividends are essentially continuous ex day price changes will not equal dividends we argue that the expected price drop is strictly less than the dividend but within one tick of the dividend the price drop to dividend ratio will i be less than one ii increase with dividends generally and iii decline between tick multiples giving a sawtooth pattern in the data since dividends and dividend yields are highly correlated discreteness will give the impression of tax induced dividend clienteles even if there are none taxable cash dividends and nontaxable stock dividends exhibit similar ex day behavior

dividends taxes and common stock prices the ex dividend day behavior of common stock prices before the income tax this study examines the ex dividend day behavior of common stock prices before the enactment of the federal income tax on ex dividend days during the pre tax period stock prices fell on average by the full amount of the dividend the data are consistent with the hypothesis that i investors in the pre tax period value dividends and capital gains as perfect substitutes and ii the differential taxation of dividends and capital gains has since caused investors to discount the value of taxable cash dividends in relation to capital gains

tax induced trading around ex dividend days abstract this paper investigates trading volume around ex dividend days for taxable distributions cash dividends it is found that trading volume increases significantly around the ex dividend day this increase is more pronounced for high yield actively traded stocks and after brokerage commissions became negotiable the results are consistent with the hypothesis that short term traders have an impact on ex day price behavior at least for taxable distributions for non taxable distributions stock splits and stock dividends we find negative abnormal volume around ex day

the transaction costs theory of joint ventures an empirical study of japanese subsidiaries in the united states this paper offers the first large sample empirical study of the factors which influence the choice of japanese firms between full or partial ownership of their u s manufacturing subsidiaries it studies for the first time the ownership policies of investors of a single home country in a single host country thus keeping variations within home and host countries constant one methodological improvement over previous studies is the use as independent variables of the relevant characteristics of the investing firms these had been proxied in previous studies by data on u s industries entered the results suggest that the degree of ownership taken by japanese manufacturing investors in their american subsidiaries is driven by the same general transaction costs variables that determine the choices made by their u s counterparts japanese parents joint venture when they need to combine with other firms intermediate inputs which are subject to high market transaction costs an intriguing result however is the lack of significance of two variables which in the u s case strongly push towards full control of foreign subsidiaries in this study neither the japanese parent s r d nor its advertising intensities had any significant impact on their ownership policies

capital market imperfections and forms of foreign operations abstract we develop a model of foreign operations to determine a parent firm s choice between wholly owned subsidiaries and joint ventures and the degree of equity participation in the latter case we introduce capital market imperfections into the model to capture a positive effect of the firm s net worth on investment this effect plays an important role in determining organization forms because the investment level affects the optimal form which determines technology transfer we show that parent firms with strong technological advantages can be controlling shareholders even if they take minority positions in ventures with local firms

the effect of tax heterogeneity on prices and volume around the ex dividend day evidence from the milan stock exchange to investigate the effect of taxation on stock price and trading volume around the ex dividend day we use the italian stock market where dividends on two classes of stock are taxed differently we find that the weighted average of investors tax rates is reflected in the ex day prices and the variance of the relative tax rate across investors is reflected in the volume of trades we also show that higher transaction costs result in higher ex dividend day excess returns and lower abnormal volume this finding is consistent with profit elimination activity by institutions and corporations article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

tick size nyse rule 118 and ex dividend day stock price behavior abstract bali and hite 1998 and dubofsky 1992 propose models in which market microstructure effects play a role in the ex dividend day price drop anomaly bali and hite suggest that the anomaly is caused solely by price discreteness while dubofsky suggests that nyse rule 118 is also involved we test these models by examining cum to ex day price drops during the one eighth one sixteenth and decimal tick size regimes while the evidence is qualitatively consistent with dubofsky s predictions neither model is satisfactory in a quantitative sense one of our main empirical findings is that no significant decline was evident in the magnitude of the ex day anomaly after the tick size reduction

ex dividend price behavior of common stocks this study examines common stock prices around ex dividend dates such price data usually contain a mixture of observations some with and some without arbitrageurs and or dividend capturers active our theory predicts that such mixing will result in a nonlinear relation between percentage price drop and dividend yield not the commonly assumed linear relation this prediction and another important prediction of theory are supported empirically in a variety of tests marginal price drop is not significantly different from the dividend amount thus over the last several decades one for one marginal price drop has been an excellent average rule of thumb article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

dividend capture in nasdaq stocks abstract we examine the importance of dividend capture trading in nasdaq stocks by testing for cross sectional relations between ex day abnormal returns and bid ask spreads throughout we find that ex day returns and spreads are positively related the relation increases across dividend yield quintiles and is strongest in high yield stocks the relation does not appear in a sample of non ex dividend days these findings indicate that dividend capture trading affects the ex day returns of at least some particularly high yield nasdaq stocks and that dividend capture trading is important for understanding ex dividend day returns

cross border investing with tax arbitrage the case of german dividend tax credits german dividends typically carry a tax credit which makes the dividend worth 42 86 more to a taxable german shareholder than to a tax exempt or foreign shareholder this results in a penalty for foreign investors who buy and hold german dividend paying stocks i document that as a result of the credit the ex day drop exceeds the dividend by more than one half of the tax credit and show that futures and option prices embed more than one half of the tax credit the existence of the credit creates opportunities for cross border tax arbitrage in which foreign holders of german stock transfer the dividend to german shareholders and implies that it is tax efficient for foreign investors to hold derivatives rather than investing directly in german stocks the empirical findings are consistent with costly tax arbitrage activity by german investors who face tax risk due to antiarbitrage rules since dividend tax credits exist in many other countries the findings are potentially of broad interest

ex dividend day trading who how and why evidence from the finnish market abstract this study examines the ex dividend day trading behavior of all investors in the finnish stock market consistent with dynamic dividend clientele theories investors with a preference for dividend income buy shares cum dividend and sell ex dividend the reverse is true for investors with the opposite preference investors also engage in overnight arbitrage earning on average a 2 overnight return on their invested capital trades at the investor level reveal that idiosyncratic risk is an important determinant in the choice of stock for short term ex day trading furthermore transaction costs and dividend yield jointly determine whether the volume of short term trading activity is nonzero