do ethics matter tax compliance and morality in this article we argue that puzzle of tax compliance can be explained at least in part by recognizing the typically neglected role of ethics in individual behavior that is individuals do not always behave as the selfish rational self interested individuals portrayed in the standard neoclassical paradigm but rather are often motivated by many other factors that have as their main foundation some aspects of ethics we argue that it is not possible to understand fully an individual s compliance decisions without considering in some form these ethical dimensions specifically we argue here that there is much direct and indirect evidence that ethics differ across individuals and that these differences matter in significant ways for their compliance decisions we then put this in the larger context of the inability of the standard neoclassical paradigm to explain compliance of at least some individuals and we suggest several possible avenues by which theory can be expanded to incorporate ethics we conclude by arguing that a full house of compliance strategies is needed to combat tax evasion strategies that include the traditional enforcement paradigm suggested by and consistent with neoclassical theory a less traditional service paradigm that recognizes the important role of a kinder and gentler tax administration in encouraging compliance and importantly a new trust paradigm that is built on the foundation of ethics in which the tax administration must recognize that it can erode the ethics of taxpayers by its own decisions

from the lab to the field a review of tax experiments tax experiments have been gaining momentum in recent years although this literature dates back several decades with new developments in methods and data availability tax experiments have gradually moved away from lab settings and towards the field this movement from the lab to the field has happened against the background of the credibility revolution in applied economics which has seen more rigorous methods applied to policy relevant questions and of the availability to researchers of administrative data from tax returns these developments have allowed significant advances in the experimental literature on tax compliance this paper reviews this literature giving particular attention to field experiments using administrative data but putting them in the broader context of the compliance literature a particular effort is made to take a global perspective in a literature that is only recently seeing the emergence of evidence from africa latin america and asia

taxman s dilemma coercion or persuasion evidence from a randomized field experiment in ethiopia we analyze data from a randomized controlled trial of two innovative anti tax evasion schemes in ethiopia that signal threats of audit and complimentary messages that encourage tax morale our results indicate that the threat of audit reduces tax evasion significantly and its effect is higher in businesses commonly suspected of high tax evasion rates we also find that appealing to the tax morale promotes compliance but slightly less than that of audit threat our results are robust to different estimation strategies and less sensitive to potential confounding factors

foreign direct investment and mark up dynamics evidence from spanish firms abstract a review of the literature indicates that foreign direct investment has the potential to increase the intensity of competition and to act as a channel for technology transfers using a spanish firm level data set we disentangle these effects by estimating a dynamic model of firm level performance which we proxy by mark ups we find that fdi has a positive long run effect on the mark ups of targets but this is limited to firms in r d intensive sectors in addition we find weak evidence that foreign presence dampens margins however this effect appears to be more than compensated by positive spillovers in the case of knowledge intensive industries

exit as governance an empirical analysis recent theory posits a new governance channel available to blockholders threat of exit threat of exit as opposed to actual exit is difficult to measure directly however a crucial property is that it is weaker when stock liquidity is lower and vice versa we use natural experiments of financial crises and decimalization as exogenous shocks to stock liquidity firms with larger blockholdings experience greater declines increases in firm value during the crises decimalization particularly if the manager s wealth is sensitive to the stock price and thus to exit threats additional tests suggest exit threats are distinct from blockholder intervention

negotiated block trades and corporate control we identify negotiated trades of large percentage blocks of stock as corporate control transactions when a block trades and the firm is not fully acquired cumulative abnormal returns average 5 6 and 33 of the chief executives are replaced within a year stock price increases are larger when control passes to the new blockholder when management does not resist the blockholder s effort to influence corporate policy and when the block purchaser eventually fully acquires the firm these findings suggest that the specific skills and expertise of blockholders and not just the concentration of ownership are important determinants of firm value we examine 106 negotiated trades of at least 5 of the common stock of new york stock exchange nyse and american stock exchange amex listed corporations our primary objective is to assess the impact of these transactions on the firms whose shares are traded we also investigate the importance of active block investor s specific managerial expertise and incentives for firm value the emerging literature on concentrated ownership focuses on how the level of ownership affects a blockholder s incentives to undertake a variety of corporate decisions although it has been recognized that a blockholder s identity also can be important less attention has been paid to this issue several recent studies however provide evidence that blockholders incentives and expertise are not homogeneous for example holderness and sheehan 1985 find that the stock market reacts more favorably to initial block accumulations by six controversial investors who are often portrayed in the press as raiders than to initial accumulations by a random sample of investors morck shleifer and vishny 1988 find that firm value tends to be lower when the firm is run by a member of the founder s family than when it is run by an officer unrelated to the founder brickley lease and smith 1988 document that institutional blockholders are less willing to vote against management on antitakeover amendments when they are likely to have business dealings with the firm when a block trades the concentration of ownership typically does not change but the blockholder s identity does

no taxation without information deterrence and self enforcement in the value added tax abstract claims that the vat facilitates tax enforcement by generating paper trails on transactions between firms contributed to widespread vat adoption worldwide but there is surprisingly little evidence this paper analyzes the role of third party information for vat enforcement through two randomized experiments among over 400 000 chilean firms announcing additional monitoring has less impact on transactions that are subject to a paper trail indicating the paper trail s preventive deterrence effect this leads to strong enforcement spillovers up the vat chain these findings confirm that when taking evasion into account significant differences emerge between otherwise equivalent forms of taxation jel d83 h25 h26 k34 o17

competition and cooperation in corporate governance the effects of labor institutions on blockholder effectiveness in 23 european countries we provide an analysis of the costs and benefits of blockholding in europe where it is a dominant but certainly not universal corporate governance strategy for shareholders of publicly listed firms we find that the effectiveness of blockholding is conditioned by the specific labor institutions that distinguish european countries from the rest of the world and that these institutional effects involve both competition and cooperation between blockholders and collective labor interests we also find that relational blockholders are better able to cope with or benefit from these institutional effects than arm s length blockholders empirically we use advanced meta analytic methods on a total sample of 748 569 firm year observations derived from 162 studies covering 23 european countries

the costs of shareholder activism evidence from a sequential decision model abstract this paper provides benchmarks for monitoring costs and evaluates the net returns to shareholder activism i model activism as a sequential decision process consisting of demand negotiations board representation and proxy contest and estimate the costs of each activism stage a campaign ending in a proxy fight has average costs of 10 71 million i find that the estimated monitoring costs reduce activist returns by more than two thirds the mean net activist return is close to zero but the top quartile of activists earns higher returns on their activist holdings than on their non activist investments the large sample evidence presented in this paper aids in understanding the nature and evolution of activist engagements

individual morality and reputation costs as deterrents to tax evasion abstract empirical evidence suggests some taxpayers never evade evasion increases with the tax rate and evasion decisions are interdependent these findings are not easily explained by the existing theory which models evasion as an independently made amoral gamble this paper uses nonpecuniary costs of evasion to reconcile theory with evidence once individuals are assumed to differ by an honesty characteristic taxpayers dichotomise into groups the more honest of which responds to a tax change as the evidence suggests a further extension is to introduce an endogenous reputation cost this suggests a positive relationship between the number of evaders and the tax rate

european corporate governance trading off liquidity against control abstract ownership dispersion is a pre requisite for liquid stock markets but it entails a collective action problem individual investors have no incentives to engage in direct monitoring legal devices can provide solutions along three dimensions one they can concentrate or dilute voting power two they can affect liquidity three they can give the right or wrong monitoring incentives this paper shows how these devices are used and how they can depress liquidity legal constraints aimed at strengthening minority protection can reduce the scope for monitoring destroy liquidity and even create incentives for minority abuse for example one share one vote restrictions encourage the formation of pyramidal holding companies the search for solutions that concentrate voting power provide liquidity and protect minorities continues

ownership structure speculation and shareholder intervention an institution holding shares in a firm can use information about the firm both for trading speculation and for deciding whether to intervene to improve firm performance intervention increases the value of the institution s existing shareholdings but intervention only increases the institution s trading profits if it enhances the precision of the institution s information relative to that of uninformed traders thus the ability to speculate can increase or decrease institutional intervention we examine key factors that affect the intervention decision the usefulness of short swing provisions and restricted shares in encouraging institutional intervention and implications for ownership structure across different firms institutional investors hold an ever greater fraction of corporate america s equity traditionally these institutions were stock pickers who tried to beat the market through trading if a firm whose stock they held seemed headed for trouble these investors headed for the door the wall street rule more recently some of these institutions have been using the ownership rights attached to their shares to pressure firms to act in the shareholders interest some have even argued that there is a synergy between gathering information for use in trading shares speculation and intelligently pressuring firms to improve performance intervention we argue that these motives can also conflict analyzing these motives allows us to predict which firms are most likely to attract institutional intervention which in turn has crosssectional implications for firm ownership structure recent examples suggest that institutional investors with large stakes sometimes intervene and sometimes follow the wall street rule so that there is indeed a choice to be studied in the early 1990s there was a wave of activism by a variety of large institutional investors among them calpers the california public employees pension fund putnam management a mutual fund manager and j p morgan a bank holding company these institu

the boundaries of multinational enterprises and the theory of international trade this paper begins with a review of empirical evidence on multinational firms conceptual underpinnings of a theory are developed relying in particular on the notion of knowledge capital as a mobile joint input into geographically separated production facilities this idea is embedded in a simple two country general equilibrium model that supports multinational production in equilibrium under conditions consistent with the empirical evidence the final section examines internalization and shows why certain properties of knowledge capital also imply a preference for transferring technologies internally within the firm rather than through arm s length markets

ghostbusting in detroit evidence on nonfilers from a controlled field experiment abstract many people who owe income tax fail to file a timely tax return in communication with these ghosts what messages from the tax authority are effective for eliciting a return this is the first study to address message content in communication with income tax nonfilers i assess the efficacy of messages related to penalty salience punishment probability compliance cost and civic pride by evaluating the response to experimental mailings distributed by detroit to 7142 suspected resident nonfilers the penalty salience message was the most effective relative to a basic mailing that requested a return penalty salience mailings that stated the statutory penalty for failing to file a return tripled response rates from 3 to 10 compliance cost mailings that enclosed a blank tax return and punishment probability mailings that stated the recipient s federal income also raised response rates relative to the basic mailing but civic pride mailings did not i investigate the impact of treatment mailings on the behavior of untreated neighbors and find no evidence of geographic network effects

an experimental evaluation of tax reporting schedules a case of evidence based tax administration abstract in an experiment in collaboration with the australian taxation office ato rental property schedules rps were sent to taxpayers for them to itemize their deductions and return the rps to the ato the intervention significantly reduced deductions compared to taxpayers who did not have to return the rps taxpayers who received only an information letter and a no contact control group regardless of a cooperative versus deterring letter tone and first time versus second time participation of taxpayers the study sheds light on the mechanisms underlying the effects of tax reporting schedules and highlights the importance of systematic experimental fieldwork in evaluating regulatory strategies

taxpayer response to an increased probability of audit evidence from a controlled experiment in minnesota abstract in 1995 a group of 1724 randomly selected minnesota taxpayers was informed by letter that the returns they were about to file would be closely examined compared to a control group that did not receive this letter low and middle income taxpayers in the treatment group on average increased tax payments compared to the previous year which we interpret as indicating the presence of noncompliance the effect was much stronger for those with more opportunity to evade in fact the difference in differences is not statistically significant for those who do not have self employment or farm income and do not pay estimated tax surprisingly however the reported tax liability of the high income treatment group fell sharply relative to the control group

endogenous market thinness and stock price volatility thin equity markets cannot accommodate temporary bulges of buy or sell orders without large price movements the resulting volatility can induce risk averse transactors who face transaction costs to desert these markets thus thinness and the related price volatility may become joint self perpetuating features of an equity market irrespective of the volatility of asset fundamentals if however appropriate incentive schemes are adopted to encourage entry by additional investors this vicious circle can be broken eventually shifting the market to a selfsustaining superior equilibrium characterized by a higher number of transactors lower price volatility and larger supply of the asset a number of empirical studies cohen et al 1976 telser and higimbotham 1977 pagano 1986 tauchen and pitts 1983 have found that thin speculative markets are ceteris paribus more volatile than deep ones a plausible explanation for this finding is that thin markets are generally characterized by small numbers of transactors per unit time and thus their prices are more sensitive to the impact of individual traders demand shocks conversely in deep markets transactors are so many that the uncorrelated demand shocks experienced by individual traders tend to offset each other and leave market prices largely unaffected while this suggests a rationale for the observed relationship between market size and price volatility it does so by taking market size as the exogenous factor however the volatility of a speculative market may feed back on its size in the sense that the high liquidation risk implied by very volatile prices can induce potential entrants to keep out of the market this paper shows that in a stock market with transaction costs this interaction between thinness and volatility can produce multiple steady state equilibria some characterized by low trade and high volatility and others by high trade and low volatility whether the market will settle in one equilibrium or another depends entirely on the expectations held by economic agents sections 2 and 3 the existence of these multiple bootstrap equilibria can be explained heuristically as follows each additional trader generates a positive externality for other actual or potential traders by decreasing the riskiness of the stock lower risk in turn tends to attract more investors with the effect of raising stock prices and inducing corporations to issue additional equity we thus have a feedback loop between market size and price volatility where market size is measured both along the dimension of the number of traders and along that of the total stock of equities if however investors face transactions costs in the stock market this positive feedback may fail to be operative if the volume of trade is expected to be small investors with relatively high transaction costs will abstain from trading thus the market

financial intermediaries and liquidity creation trading losses associated with information asymmetries can be mitigated by designing securities which split the cash flows of underlying assets these securities which can arise endogenously have values that do not depend on the information known only to informed agents bank debt deposits is an example of this type of liquid security which protect relatively uninformed agents and we provide a rationale for deposit insurance in this content high grade corporate debt and government bonds are other examples implying that a money market mutual fund based payments system may be an alternative to one based on insured bank deposits

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

tax rates and tax evasion evidence from missing imports in china tax evasion by its very nature is difficult to observe we quantify the effects of tax rates on tax evasion by examining the relationship in china between the tariff schedule and the evasion gap which we define as the difference between hong kong s reported exports to china at the product level and china s reported imports from hong kong our results imply that a one percentage point increase in the tax rate is associated with a 3 percent increase in evasion furthermore the evasion gap is negatively correlated with tax rates on closely related products suggesting that evasion takes place partly through misclassification of imports from higher taxed categories to lower taxed ones in addition to underreporting the value of imports

commitment to pay taxes results from field and laboratory experiments abstract a tax authority s ability to successfully collect taxes depends on its relationship with the taxpayers as well as their commitment to contribute to the common good in this paper we examine the effect of promises on tax compliance aimed at fostering taxpayer commitment first in a field experiment we investigate whether tax compliance changes when taxpayers make a formal promise to pay their taxes on time with compliance rewarded by entry into a lottery for either a financial or nonfinancial in kind reward we then complement this analysis with a laboratory experiment in which we measure the effect of promises in the different compliance domain of tax honesty and contrast the effect of a pure promise to pay with schemes that pair the promise with a reward offer we find that taxpayers with a history of compliance or high scores on tax morale are more likely to make the promise but solely offering the possibility to make a promise does not lead to a change in compliance behavior whether or not compliance improves depends on the type of reward to which the promise is linked in our experimental analyses for example compliance only increases if the reward for promise fulfillment is nonfinancial

impact of personal and situational factors on taxpayer compliance an experimental analysis this study used a laboratory experiment with monetary incentives to test the impact of three personal factors moral reasoning value orientation and risk preference and three situational factors the presence absence of audits tax inequity and peer reporting behavior while controlling for the impact of other demographic characteristics on tax compliance analysis of covariance ancova reveals that all the main effects analyzed are statistically significant and robustly influence tax compliance behavior these results highlight the importance of obtaining a proper understanding of these factors for developing effective policies for increasing the level of compliance and indicate that standard enforcement polices based on punishment alone should be supplemented by an information system that would acquaint tax payers with the compliance level of other tax payers reinforce the concept of fairness of the tax system among tax payers and develop programs that enhance and appeal to a taxpayer s moral conscience and reinforce social cohesion

unwilling or unable to cheat evidence from a tax audit experiment in denmark this paper analyzes a tax enforcement field experiment in denmark in the base year a stratified and representative sample of over 40 000 individual income tax filers was selected for the experiment half of the tax filers were randomly selected to be thoroughly audited while the rest were deliberately not audited the following year threat of audit letters were randomly assigned and sent to tax filers in both groups we present three main empirical findings first using baseline audit data we find that the tax evasion rate is close to zero for income subject to third party reporting but substantial for self reported income since most income is subject to third party reporting the overall evasion rate is modest second using quasi experimental variation created by large kinks in the income tax schedule we find that marginal tax rates have a positive impact on tax evasion for self reported income but that this effect is small in comparison to legal avoidance and behavioral responses third using the randomization of enforcement we find that prior audits and threat of audit letters have significant effects on self reported income but no effect on third party reported income all these empirical results can be explained by extending the standard model of rational tax evasion to allow for the key distinction between self reported and third party reported income

efficient and inefficient sales of corporate control this paper develops a framework for analyzing transactions that transfer a company s controlling block from an existing controller to a new controller this framework is used to compare the market rule which is followed in the united states with the equal opportunity rule which is used in many other countries the market rule is superior to the equal opportunity rule in facilitating efficient transfers of control but inferior to it in discouraging inefficient transfers conditions under which one of the two rules is overall superior are identified for example the market rule is superior if existing and new controllers draw their characteristics from the same distributions finally the rules effects on surplus division are analyzed and this examination reveals a rationale for mandatory rules

too dispersed to monitor ownership dispersion monitoring and the prediction of bank distress this paper conducts an empirical assessment of the theories stating that ownership concentration improves the quality of shareholders monitoring in contrast with other studies we do not use regressions of risk performance on ownership concentration instead we build an early warning model of bank distress that includes a leading indicator derived from banks share price the merton kmv distance to default dd the significance of this indicator depends on the efficacy of shareholders monitoring on a sample of european banks we show that the predictive power of the dd is satisfactory only when banks shareholding is characterized by the presence of blockholders

effects of supervision on tax compliance evidence from a field experiment in austria we conduct a field experiment on tax compliance focusing on newly founded firms as a novelty the effect of tax authorities supervision on timely tax payments is examined interestingly results show no positive overall effect of close supervision on tax compliance

is economics useful for public policy economists have always played an important role in major public policy debates even so i believe that the role of economists in these public policy discussions has often been misguided because it has typically relied upon best practices stated in the form of general guidelines or even universal principles however best practices are not best if the specific situation does not conform with the assumptions that underlie the advice so my first conclusion is a cautionary and negative one specific circumstances differ so profoundly across individuals firms markets countries and time that most any attempt to define best practices that apply in all circumstances will lead to profoundly misleading public policy recommendations however even if economics cannot identify the truth it can often identify a truth so my second conclusion is a more positive one economists should continue to develop multiple theories that inform public policies but we should also focus our efforts on identifying and testing the critical assumptions that drive the results of these theories recognizing that the validity of any assumptions will depend intimately on specific circumstances i illustrate these two main conclusions with specific examples from my own work i conclude with some best practices recommendations of my own recognizing the obvious irony of such an effort

behind the scenes the corporate governance preferences of institutional investors we survey institutional investors to better understand their role in the corporate governance of firms consistent with a number of theories we document widespread behind the scenes intervention as well as governance motivated exit these governance mechanisms are viewed as complementary devices with intervention typically occurring prior to a potential exit we further find that long term investors and investors that are less concerned about stock liquidity intervene more intensively finally we find that most investors use proxy advisors and believe that the information provided by such advisors improves their own voting decisions

heard it through the grapevine the direct and network effects of a tax enforcement field experiment on firms abstract tax enforcement may have deterrent effects that extend beyond directly treated taxpayers but evidence of such deterrent effects for major sources of revenue is limited this paper studies the effects of a large scale field experiment on employer deposits that make up most u s tax collections in person visits by revenue officers have a large direct effect on visited firms tax deposits the other clients of visited firms tax preparers also deposit more tax a network effect that suggests preparers disseminate information aggregating over all links this network effect accounts for 1 2 times as much revenue as the direct effect letters conveying the same message are found to have much smaller direct effects and no measurable network effects

ownership structure governance and innovation abstract this paper tests the impact of firms ownership structure on innovation in a context featuring pronounced ownership concentration and conflicts between large and minority shareholders using data for 20 000 italian manufacturers and accounting for the possible endogeneity of ownership levels we find that ownership concentration negatively affects innovation especially by reducing r d effort conflicts between large and minority shareholders appear to be a determinant of this effect moreover risk aversion induced by lack of diversification exacerbates large shareholders reluctance to innovate family owners support innovation more than financial institutions but the benefits of financial institutions increase with their equity stakes

blocks liquidity and corporate control the paper develops a simple model of corporate ownership structure in which costs and benefits of ownership concentration are analyzed the model cornpares the liquidity benefits obtained through dispersed corporate ownership with the benefits from efficient management control achieved by some degree of ownership concentration the paper reexamines the free rider problem in corporate control in the presence of liquidity trading derives predictions for the trade and pricing of blocks and provides criteria for the optimal choice of ownership structure the recent incomplete contracting approach in corporate finance has considerably improved our understanding of how small firms determine their capital structure the basic setting considered in this line of research is one where a founder manager seeks funding from one or several financiers the main premise is that the founder manager in her dealings with the financiers is primarily concerned with maintaining her private benefits of control for small firms these are often quite large relative to the financial returns thus for a small firm the problem of determining the financial structure often reduces to the problem of how to obtain fundingr while giving away as little control as possible to the financiers of course most financiers insist on some form of protection so that the final compromise reached in most financial contracts for small firms is one resembling a debt contract or a venture capital contract which protects the founder manager s control as long as the firm is performing adequately this perspective for small firms does not extend naturally to large firms because the private benefits of control of the managers for large firms are likely to be small relative to the firm s monetary returns so that protection of these benefits is not an overriding consideration moreover large firms

ownership concentration corporate control activity and firm value evidence from the death of inside blockholders we analyze how ownership concentration affects firm value and control of public companies by examining effects of deaths of inside blockholders we find shareholder wealth increases ownership concentration falls and extensive corporate control activity ensues share price responses are related to the deceased s equity stake control group holdings fall for two thirds of the firms due to either the estate s dispersal or inheritors selling stock a majority of firms become targets of control bids three quarters of bids are successful one third are hostile our evidence is broadly consistent with stulz s 1988 model of the relationship between ownership concentration and firm value the objective of this paper is to assess how changes in insider ownership concentration affect firm value corporate governance and the control of public companies we obtain our evidence on these issues by examining the effects of the death of an inside blockholder that is a member of the firm s control group as defined by securities and exchange commission sec disclosure rules who holds 5 percent or more of a firm s equity overall we find that the death of an inside blockholder an exogenous event is value enhancing reduces ownership concentration and leads to extensive corporate control activity our analysis has three components one we use market based evidence to evaluate how changes in ownership concentration affect firm value by analyzing the share price response to the death of an inside blockholder financial market efficiency implies that share prices capitalize gains or losses from changes in ownership concentration and future control events expected to ensue from an inside blockholder s death thus such valuation effects provide a test of the continuing controversy as to whether ownership concentration promotes managerial entrenchment or aligns insider and noninsider interests we find that the share price response to the death of an inside blockholder is significantly positive when the level of ownership concentra

the going public decision and the development of financial markets this paper explores the linkages between stock price efficiency the choice between private and public financing and the development of capital markets in emerging economies generally the advantage of public financing is high if costly information is diverse and cheap to acquire and if investors receive valuable information without cost the value of public firms generally depends on public market size which implies that there can be a positive externality associated with going public so that an inferior equilibrium can exist where too few firms go public the model is consistent with empirical observations on financial market development

cheating ourselves the economics of tax evasion no government can announce a tax system and then rely on taxpayers sense of duty to remit what is owed some dutiful people will undoubtedly pay what they owe but many others will not over time the ranks of the dutiful will shrink as they see how they are being taken advantage of by the others thus paying taxes must be made a legal responsibility of citizens with penalties attendant on noncompliance but even in the face of those penalties substantial tax evasion exists and always has the history of taxation is replete with episodes of evasion often notable for their inventiveness during the third century many wealthy romans buried their jewelry or stocks of gold coin to evade the luxury tax and homeowners in eighteenth century england temporarily bricked up their fireplaces to escape notice of the hearth tax collector webber and wildavsky 1986 p 141 this essay reviews what is known about the magnitude nature and determinants of tax evasion with an emphasis on the u s income tax alm 1999 andreoni erard and feinstein 1998 and slemrod and yitzhaki 2002 offer more comprehensive recent reviews of the literature it then places this information into a conceptual and policy context

the geography of equity listing why do companies list abroad this paper documents aggregate trends in the foreign listings of companies and analyzes their distinctive prelisting characteristics and postlisting performance in 1986 1997 many european companies listed abroad mainly on u s exchanges while the number of u s companies listed in europe decreased european companies that cross list tend to be large and recently privatized firms and expand their foreign sales after listing abroad they differ sharply depending on where they cross list the u s exchanges attract high tech and export oriented companies that expand rapidly without significant leveraging companies cross listing within europe do not grow unusually fast and increase their leverage after cross listing foreign listings are becoming an increasingly important strategic issue for companies and stock exchanges alike as companies become global in their product market and investment strategies direct access to foreign capital markets via an equity listing can yield important benefits at the same time the international integration of capital markets has led to unprecedented levels of competition among stock exchanges in this competitive struggle the winners are the exchanges that manage to attract more foreign listings and the attendant trading volume and business opportunities despite the importance of these issues still little is known about which exchanges succeed in capturing more listings from abroad and why this question is intimately related to a second issue namely which advantages companies expect to get from a foreign listing securing cheap equity capital for new investment allowing controlling shareholders to divest on a liquid market preparing for foreign acquisitions or simply enhancing the compa

field experiments in the developed world an introduction field experiments represent a relatively new area in economics to understand the causal links from one variable to another they have been used by academics to help answer interesting and policy relevant questions in the developed world relating to educational attainment tax avoidance consumer finance negative externalities charitable giving and labour market contracts in this paper we bring together the key ideas behind the different variants of field experiments how field experiments have been used to test theory their limitations and the new areas currently being opened up by field experiments

principal principal conflicts and corporate philanthropy evidence from chinese private firms the principal principal perspective suggests that controlling shareholders have excessive influence on corporate philanthropy and may direct corporate funds to charitable causes to support their personal interests analysis of a sample of chinese private firms listed on the shenzhen or shanghai stock exchange between 2004 and 2011 shows that 1 there is a significant and negative relationship between corporate giving and the share held by the largest shareholders suggesting that controlling shareholders are opportunistic in directing corporate charitable contributions 2 there is a significant and positive relationship between corporate giving and the political connections of the largest shareholders and their agents suggesting compatibility between corporate contributions and the personal interests of the controlling shareholders 3 there is a stronger negative relationship between corporate giving and the share of the company held by the largest shareholders in politically connected firms suggesting that political connections contribute to increased opportunistic corporate giving overall our study provides important evidence for the one dominant controlling shareholder phenomenon yigududa by testing and extending the principal principal framework and showing that the largest shareholders of chinese firms appear to donate to charitable causes that ultimately serve their personal interests at the expense of minority shareholders

deterrence vs gamesmanship taxpayer response to targeted audits and endogenous penalties abstract taxpayers with large amounts of non third party reported income usually self report at least a portion of it an act inconsistent with common theories of compliance i explain this behavior by generalizing the classical evasion theory to realistically account for the endogeneity of audit and payment rates these taxpayers refrain from more evasion not due to deterrence but to tilt the odds and payoffs of the evasion gamble the introduction of this incentive helps explain many empirical findings that seemingly contradict a more restrictive and unrealistic version of the deterrence paradigm i also estimate feasible structural calibrations the first based on observed compliance behavior of taxpayers perceptions of the relationship between evasion audit probabilities and payment rates

an analysis of the stock price reaction to sudden executive deaths implications for the managerial labor market abstract certain characteristics of managerial employment arrangements and of the managerial labor market make shareholder wealth dependent on an executive s continued employment these wealth effects are investigated by examining the common stock price reaction to unexpected deaths of senior corporate executives abnormal stock price changes are documented for a sample of fifty three events these abnormal stock price changes are associated with the executive s status as a corporate founder and with measures of the executive s talents and decision making responsibility and of the transaction costs associated with renegotiating or terminating the employment agreement

ambiguity and the corporation group disagreement and underinvestment abstract we study a dynamic corporate investment problem where decisions have to be made collectively by a group of agents holding heterogeneous beliefs and adhering to a utilitarian governance mechanism in which each agent has a given influence in the decision in this setting we show that i group decisions are typically dynamically inconsistent ii dynamic inconsistency leads to inefficient underinvestment and iii the ability to trade securities among insiders or with outsiders may restore efficient investment decisions but it may in some cases lead to inefficient overinvestment our theory can help explain the empirical evidence on the effect of diversity of groups such as corporate boards on firms outcomes and more generally on the difference between group and individual behavior

diversification and ownership concentration abstract if controlling shareholders can divert profits equity ownership is more concentrated the higher the stock returns correlation a higher returns correlation reduces the benefits of diversification giving rise to both a higher investment by the controlling shareholder in the asset that he controls and a lower investment by the non controlling shareholders the empirical analysis supports the predictions of the model equity ownership is more concentrated in countries where the stock returns correlation is higher moreover the intensity of the relationship between the stock returns correlation and ownership concentration is amplified by poor investor protection

institutional change in contemporary capitalism coordinated financial systems since 1990 what happens when the unstoppable force of liberalization collides with the immovable object of national financial institutions in the advanced industrial democracies to answer this question and evaluate alternative mechanisms to explain institutional change this article examines the cases of the three large european economies with concentrated share ownership france germany and italy in the formal legal mechanism interest coalitions adopt new laws leading actors to deviate from formerly stable patterns of behavior in shareholding in the joint belief shift mechanism collective actors use a triggering event to jointly reevaluate their views of how the world works and thus how their interests can best be pursued using the metric of patient capital this article shows that institutional change took place in france but not in germany or italy despite the fact that germany and italy experienced significant regulatory change in the area of corporate governance while france did not this evidence fits joint belief shift and is inconsistent with the formal legal mechanism it is likely that the importance of the two mechanisms of institutional change depends on the degree of strategic interdependence among institutional actors where it is high the joint belief shift mechanism is likely to precipitate change and where it is low the formal legal mechanism is likely to precipitate change

competitive pressure and economic integration an illustration for spain 1983 1996 abstract this paper estimates sectoral mark ups in the spanish economy during the period 1983 1996 the data consists of a large firm level data set that encompasses all sectors of economic activity apart from financial institutions the time period considered is well suited to assess the pro competitive effect of economic integration as spain s economy became fully integrated in the eu which was itself embarking on a massive liberalisation exercise i find that sectors most exposed to international competition witnessed a significant drop in margins while those more sheltered from competitive pressures did not finally comparing estimated mark ups to accounting margins indicates that the latter are a reasonable proxy for margins obtained econometrically

dual class ipos a theoretical analysis we consider an incumbent who wishes to sell equity to outsiders at an ipo to implement his firm s project he may be talented lower cost of effort comparative advantage in project implementation or untalented the project may have high intrinsically more valuable but showing less signs of success in the near term or low near term uncertainty under a single class share structure the incumbent has a greater chance of losing control to potential rivals if he undertakes the project with high near term uncertainty since outsiders may vote for the rival if they believe the project is not progressing well a dual class share structure allows the incumbent to have enough votes to prevail against any rival but may be misused by untalented incumbents to dissipate value our results help to explain firms choices between dual class and single class ipos and the post ipo operating performance of dual class versus single class firms

public trading and private incentives this article studies the link between public trading and the activity of a firm s large shareholder who can affect firm value public trading results in the formation of a stock price that is informative about the large shareholder s activity this increases the latter s incentives to engage in value increasing activities indeed if he has to liquidate part of his stake before the effect of his activity is publicly observed a more informative price rewards him for his activity implications are derived for the decision to go public capital structure and security design we consider a firm with a large shareholder and otherwise dispersed shares which are publicly traded the block holder is an insider in the sense that he can undertake actions that directly affect the firm s value moreover the insider might not take all value increasing actions as at least some of them involve a private cost for him in other words there is an incentive problem the article s main premise is that public trading as part of the price formation process generates information not only about exogenous factors affecting firm value but also about the insider s activity for instance as a result of public trading a firm s stock price will incorporate the market s evaluation of how a controlling shareholder allocates corporate resources we identify two sources of incentives for the insider to engage in activities that will increase firm value the first one is his stake in the firm since the insider participates in a value increase in proportion to his equity stake a larger stake increases the benefit to him from the firm value being high the view that large shareholders affect firm value is indeed widespread shleifer and vishny 1997 they alleviate the free rider problem pervasive in firms with passive dispersed investors unable or unwilling to affect the firm s operations that is outsiders

insider ownership and financial flexibility this study examines the cash flow sensitivity of external financing financial flexibility ff of firms from the perspective of the agency by focusing on whether and how insider ownership has a modifying effect on the ff of firms given the documented relationship between corporate governance and cost of external financing insider ownership an important proxy of corporate governance should affect ff via the agency cost channel a review of the us nonfinancial firms from 1992 to 2009 indicates that insider ownership aids in determining the ff of firms more specifically results indicate the existence of optimal insider ownership and any deviation from it causes ff to decrease in addition ff is higher when ceo ownership is lower 0 08 and this phenomenon is more pronounced for financially unconstrained firms furthermore ff is higher when non ceo insider ownership is in the middle range 0 12 0 43 for financially constrained firms whereas non ceo insider ownership has minimal impact on ff fo

the use of field experiments to increase tax compliance governments have become increasingly interested in the explosion of research into taxpayer behaviour this article briefly reviews two main theories of tax compliance deterrence and non deterrence before discussing the recent rapid rise of natural field experiments nfes in this area these nfes represent a win win for policy makers and academics since they can test theories while also evaluating the impact of a specific intervention in the real world the evidence from nfes shows that deterrence approaches improve compliance while the case for non deterrence approaches is less conclusive at the moment nfes could be improved by paying more attention to findings from behavioural science that apparently incidental factors such as timing framing and complexity substantially affect whether compliance occurs or not new directions for future studies include network effects tax payments in addition to declarations the behaviour of firms the provision of public goods and the relationship between attitudes and behaviour

using satellite imagery to create tax maps and enhance local revenue collection although taxes on land and property have many desirable attributes the challenge of ensuring completeness of tax rolls and currency of valuations preclude their effective use to support urbanizati