estimating the tax advantage of corporate debt this paper presents estimates of the effective tax value of incremental interest deductions for corporations taking into account that they may not be able to utilize all their interest deductions fully because of either insufficient taxable income or the availability of nondebt tax shields after describing particular features of the tax code which may drive a wedge between statutory and effective tax rates for debt finance we present estimates using the treasury corporate tax model of effective tax rates for a variety of industry groupings our estimates suggest that the after tax cost of debt varies widely across industries the magnitude of the effective tax advantage to debt finance has important implications for corporate financial behavior one issue which has been examined extensively in the corporate finance literature is whether the value of the firm is affected by the firm s leverage ratio in a recent contribution deangelo and masulis 3 have shown that financing decisions can affect the value of the firm if the effective tax advantage to debt finance varies among firms or is reduced by the presence of nondebt tax shields such as investment tax credits and depreciation deductions the effective tax advantage to debt is also an important determinant of leverage related costs gordon and malkiel 5 have recently used the statutory tax rate to estimate expected bankruptcy costs induced by the corporate tax when the firm is assumed to balance the marginal tax advantage to debt with marginal expected bankruptcy costs if however the effective tax rate for interest deductions falls short of the statutory rate the magnitude of these costs may be overstated this paper presents detailed estimates of the marginal effective tax advantage to debt finance our estimates based on data in the treasury 1978 corporate master statistical file and on simulations done with the treasury corporate tax model quantify the impact of increasing interest deductions without changing other items on the corporation s income statement 1 we simulate the impact of a change in a firm s capital structure holding its investment and production decisions constant this is an appropriate procedure for estimating the marginal

ppp and structural breaks the peseta sterling rate 50 years of a floating regime abstract this paper aims to illustrate the relevance of considering structural breaks in purchasing power parity ppp tests to that end we examine the peseta sterling real exchange rate between 1870 and 1935 this is an interesting series given that the peseta was not part of the gold standard yet maintained a floating rate regime during most of that period when breaks are not considered it is impossible to reject the existence of a unit root in the series however if two breaks are allowed with these capturing the particular events that occurred in the monetary history of these currencies at the beginning and end of the period then the null hypothesis can be rejected and ppp emerges as a good approximation of the behavior of the peseta sterling exchange rate even if that rate was predominantly a floating regime

revisiting purchasing power parity for african countries with nonlinear panel unit root tests this study applies panel seemingly unrelated regressions sur kapetanios et al kapetanios shin snell kss surkss tests proposed by wu and lee 2009 to investigate the properties of long run purchasing power parity ppp in 15 african countries the empirical results from the univariate unit root and panel based unit root tests indicate that ppp does not hold for these 15 countries under study however panel surkss tests indicate that ppp is valid for four of these 15 countries these results have important policy implications for these 15 african countries under study

nonlinear dynamics in deviations from the law of one price a broad based empirical study abstract in this paper we test empirically the validity of the law of one price using data for five major bilateral us dollar exchange rates and nine goods sectors during the recent floating exchange rate regime since the early 1970s using threshold autoregressive models we find strong evidence of nonlinear mean reversion in deviations from the law of one price with plausible convergence speeds consistent with theoretical arguments on international goods markets arbitrage under transactions costs and with an emerging strand of empirical literature these results contribute towards forming a consensus view in favor of discrete regime switching in deviations from the law of one price and the presence of differing nonzero transactions costs across a broad range of goods and countries

the effect of business risk on corporate capital structure theory and evidence under corporate and personal taxation we demonstrate that the relation between optimal debt level and business risk is roughly u shaped this result follows from the fact that the tax liability is an option portfolio that is long in the corporate tax option and short in the personal tax option therefore the net effect of a change in business risk on the optimal debt level depends upon the relative magnitudes of the resultant marginal changes in the values of these two options results of empirical tests offer support for the predicted u shaped relationship

early and late calls of convertible bonds theory and evidence many convertible bonds are called too early or too late relative to the perfect markets decision rule of ingersoll 1977a and ingersoll 1977b we re examine the convertible call decision under corporate taxation and possible default prior to maturity our model predicts that early calls will be associated with high coupon and low call premium dividend income volatility tax rate and interest rate and late calls will be associated with high call premium dividend income tax rate and interest rate and low coupon and volatility these implications are supported by empirical tests carried out with five years of convertible call data

the significance of tax law asymmetries an empirical investigation this study uses tax return data for u s nonfinancial corporations for the period 1971 1982 to estimate the importance of restrictions on the ability of firms to use tax credits and to obtain refunds for tax losses our results suggest that the incidence of such unused tax benefits increased substantially during the early 1980s though we do not find these increases attributable to increased investment incentives during that period we present estimates of the marginal tax rate on interest payments which take into account unused tax benefits and emphasize the importance of distinguishing current tax payments from marginal tax rates in estimating the incentive to invest

liquidity and the dynamic pattern of asset price adjustment a global view abstract global liquidity expansion has been very dynamic since 2001 contrary to conventional wisdom high money growth rates have not coincided with a concurrent rise in goods prices at the same time however asset prices have increased sharply significantly outpacing the subdued development in consumer prices we investigate the interactions between money and goods and asset prices at the global level using aggregated data for major oecd countries our var results support the view that different price elasticities on asset and goods markets explain the observed relative price change between asset classes and consumer goods

asset substitution and structured financing this article shows how structured financing can be used to solve the asset substitution problem in a dynamic setting structuring induces the firm s owner to optimally choose the first best operating strategy even though the owner s value function might be locally convex concave which would ordinarily lead to overinvestment underinvestment in risky projects this result is demonstrated in two different continuous time settings one that is based on the risk shifting framework of leland 1998 and one that generalizes the scaled return model of green 1984 it is shown that the contractual nature of the structuring is a key determinant of the issuing firm s dynamic asset volatility furthermore unlike nonstructured financing the default conversion probability of a structured debt security may be increasing decreasing in the firm s total assets structured securities are therefore hedge assets which potentially explains the popularity of structured securities among investors and third party issuers

empirical evidence of risk shifting in financially distressed firms this paper provides evidence of risk shifting behavior in the investment decisions of financially distressed firms using a real options framework i show that shareholders risk shifting incentives can reverse the expected negative relation between volatility and investment i test two hypotheses that are consistent with risk shifting behavior i volatility has a positive effect on distressed firms investment ii investments of distressed firms generate less value during times of high uncertainty empirical evidence using 40 years of data supports both hypotheses i further evaluate the effect of various firm characteristics on risk shifting and estimate the costs of the investment distortion

a review of pumped hydro energy storage development in significant international electricity markets the global effort to decarbonise electricity systems has led to widespread deployments of variable renewable energy generation technologies which in turn has boosted research and development interest in bulk electrical energy storage ees however despite large increases in research funding many electricity markets with increasingly large proportions of variable renewable generation have seen little actual bulk ees deployment while this can be partly attributed to the need for technological developments it is also due to the challenge of fairly rewarding storage operators for the range of services that storage provides to the wider network especially in markets that have undergone significant restructuring and liberalisation pumped hydroelectric energy storage phes is the overwhelmingly established bulk ees technology with a global installed capacity around 130 gw and has been an integral part of many markets since the 1960s this review provides an historical overview of the development of phes in several significant electrical markets and compares a number of mechanisms that can reward phes in different international market frameworks as well as providing up to date information about phes a primary motivation for this work is to provide an overview about the types of rewards available to bulk ees for the wider storage community including investors technology developers and policy makers observing that bulk ees projects seem to be unattractive investments for the private sector the paper also includes a brief discussion in terms of public sector investment

on the existence of an optimal capital structure theory and evidence one of the most contentious issues in the theory of finance during the past quarter century has been the theory of capital structure the geneses of this controversy were the seminal contributions by modigliani and miller 18 19 the general academic view by the mid 1970s although not a consensus was that the optimal capital structure involves balancing the tax advantage of debt against the present value of bankruptcy costs no sooner did this general view become prevalent in the profession than miller 16 presented a new challenge by showing that under certain conditions the tax advantage of debt financing at the firm level is exactly offset by the tax disadvantage of debt at the personal level since then there has developed a burgeoning theoretical literature attempting to reconcile miller s model with the balancing theory of optimal capital structure e g deangelo and masulis 5 kim 12 and modigliani 17 the general result of this work is that if there are significant leverage related costs such as bankruptcy costs agency costs of debt and loss of non debt tax shields and if the income from equity is untaxed then the marginal bondholder s tax rate will be less than the corporate rate and there will be a positive net tax advantage to corporate debt financing the firm s optimal capital structure will involve the trade off between the tax advantage of debt and various leverage related costs the upshot of these extensions of miller s model is the recognition that the existence of an optimal capital structure is essentially an empirical issue as to whether or not the various leverage related costs are economically significant enough to influence the costs of corporate borrowing the miller model and its theoretical extensions have inspired several timeseries studies which provide evidence on the existence of leverage related costs trczinka 28 reports that from examining differences in average yields between taxable corporate bonds and tax exempt municipal bonds one cannot reject the miller hypothesis that the marginal bondholder s tax rate is not different from the corporate tax rate however trczinka is careful to point out that this finding does not necessarily imply that there is no tax advantage of corporate debt if the personal tax rate on equity is positive indeed buser and hess 1 using a longer time series of data and more sophisticated econometric techniques estimate that the average effective personal tax rate on equity is statistically positive and is not of a trivial magnitude more importantly they document evidence that is consistent with the existence of significant leverage related costs in the economy

board of directors quality and firms debt financing the moderating effect of insider ownership evidence from omani firms abstractthis study aims to examine the direct effects of board of directors quality and insider ownership on firms capital structure and the moderating effect of insider ownership on the relationship between board of directors quality and firms capital structure the sample of this study consists of the time period 2005 2011 the final sample consists of 535 firm year observations of public nonfinancial firms listed on the muscat securities market msm the hypotheses are tested using a random effects model the results reveal that the coefficient sign on the board of directors quality is as predicted but the coefficient sign is insignificant further the results show that insider ownership is positively associated with leverage at the significant level of 10 suggesting that the inside substantial shareholders employ higher leverage with regard to the moderating effect of insider ownership the findings show that the effect of the board of directors quality leverage relationship becomes negati

review of renewable energy investment and financing in china status mode issues and countermeasures abstract with the support of national policies china s renewable energy generation industry has experienced a rapid development period and entered the world forefront level especially in the aspects of installed capacity and speed of newly installed capacity however with the rapid development of renewable energy the power generation industry is facing more and more challenges particularly in investment and financing as for wind power industry there are also some problems such as single financing channels blindness of projects investment and so on which will result in financing difficulties for some advanced projects in addition the problems for the investment of photovoltaic pv power generation leads to vicious competition and a tumble in international market thus the overcapacity of china s entire pv industry emerges generally speaking the renewable energy industry is facing a seemingly contradictory predicament of funding deficiencies and blind investment which is derived from the government centered renewable energy investment and financing this government centered mode has promoted the development of renewable energy industry in the early stage but it cannot be adapted to the requirements of sustainable development in view of these the problems of renewable energy investment and financing are deeply studied in this paper this paper proceeds as follows firstly the overview of the development of china s renewable energy industry is briefly introduced secondly the status quo of china s renewable energy investment and financing is explored in detail based on overview of the following five perspectives investment situation investment and financing bodies investment and financing means sources of funding and financing channels secondly the patterns and characteristics of renewable energy financing are summarized and a comparative analysis of wind power and photovoltaic power generation financing means is carried out finally renewable energy investment and financing issues are discussed and further feasible proposals are put forward in all this paper is of great significance in the sustainable and healthy development of china s renewable energy

china s new energy development status constraints and reforms abstract as the conventional energy resources are limited and environmental problems are becoming increasingly prominent new energy resources being environmental friendly and renewable are paid more and more attention by all the countries at present the development and utilization of new energy resources in china has made progress however due to the factors such as the international energy competition situation china s productivity level and its development phase and the lagging of related system and mechanism reforms china s new energy has been faced with constraints in the aspects of the system efficiency supply region and technology if related reforms were not implemented the development of new energy in china would be severely hindered for a long period of time in the future in view of this this paper reviewed the development status of china s new energy industry and analyzed five aspects of constraints moreover a discussion was carried out from four aspects of the system consumption production technology reforms in order to break the corresponding constraints finally the future development planning of new energy was presented all in all the deep investigation into china s new energy development status constraints reforms and planning in this paper is aimed at promoting the reform of new energy resources production and utilization modes improving the policy system continuously addressing the deep rooted institutional contradictions of the new energy industry and providing the reference and advice for the transformation of china s energy structure

reinsurance and corporate taxation in the united kingdom life insurance industry there are two main tax related arguments regarding the use of reinsurance the income volatility reduction and the income level enhancement arguments the income volatility reduction argument contends that firms facing convex tax schedules have incentives to hedge in order to reduce the volatility of their annual taxable income and thereby lower expected tax liabilities smith c w stulz r m 1985 optimal hedging policies journal of financial and quantitative analysis 19 127 140 the income level enhancement argument advanced by adiel adiel r 1996 reinsurance and the management of regulatory ratios and taxes in the property casualty insurance industry journal of accounting and economics 22 207 240 is more specific to hedging via reinsurance this perspective holds that reinsurance enhances current reported earnings via the receipt of reinsurance commissions and so increases tax liabilities consequently insurance firms with high marginal tax rates should use less reinsurance than those with low marginal tax rates if tax matters prior studies using data on financial derivatives have produced mixed results on the validity of the first argument while adiel 1996 finds the second argument insignificant in his study of the use of reinsurance by a sample of united states us property liability insurance firms this study tests the two tax related arguments using 1992 2001 data for a sample of united kingdom uk life insurance firms we find that uk life insurers with low before planning marginal tax rates tend to use more reinsurance in contrast tax convexity is found to have no significant impact on the purchase of reinsurance and so the volatility reduction argument is not supported

purchasing power parity and the behavior of prices and nominal exchange rates across exchange rate regimes abstract the evidence presented in this paper shows that purchasing power parity as a long run proposition is indeed a very useful approximation we see this quite clearly in the panel data for three historical periods examined here the classical gold standard era from 1870 to 1914 the interwar period from 1921 to 1939 and the period after world war ii from 1959 to 1998 price level behavior across countries differs in the way that ppp suggests when monetary arrangements differ and is highly similar when monetary arrangements are themselves similar inflation rates adjusted for exchange rate changes in general are highly correlated and bear a one to one relation to one another within and across the three periods and the varied monetary regimes that prevailed

cross jurisdictional income shifting by u s multinationals evidence from international bond offerings we examine whether tax incentives influence where u s multinationals locate their interest deductions worldwide our sample includes international bond offerings by u s multinationals during 1987 1997 denominated in the currencies of australia canada france germany italy japan or the united kingdom our results suggest that u s multinationals debt location decisions take into account the effect of jurisdiction specific tax loss carryforwards and binding foreign tax credit limitations on the value of debt tax shields our results are also consistent with u s multinationals locating interest deductions in different tax jurisdictions as a mechanism to achieve tax motivated income shifting

pecking order or trade off hypothesis evidence on the capital structure of chinese companies this study tests the pecking order and trade off hypotheses of corporate financing decisions using a cross section of the largest chinese listed companies the study is built on allen 1993 baskin 1989 and adedeji 1998 to set up three models in which trade off and pecking order theories give distinctively different predictions 1 the determinants of leverage 2 the relationship between leverage and dividends and 3 the determinants of corporate investment in model 1 a significant negative correlation is found between leverage and profitability in model 2 a significant positive correlation between current leverage and past dividends is found these results broadly support the pecking order hypothesis over trade off theory however model 3 is inconclusive overall the results provide tentative support for the pecking order hypothesis and demonstrate that a conventional model of corporate capital structure can explain the financing behaviour of chinese companies

proxies for the corporate marginal tax rate abstract this paper focuses on how best to measure the corporate marginal tax rate which is an important input into financial analysis of the cost of capital financing policy corporate hedging and corporate reorganizations the results indicate that the simulated tax rate used by shevlin 1990 and graham 1996 although difficult to calculate is the best available proxy for the true marginal tax rate if the simulated rate is unavailable an easy to calculate trichotomous variable or the statutory marginal tax rate which captures the progressivity in the tax schedule are reasonable alternatives better than most commonly used tax variables

tax planning regulatory capital planning and financial reporting strategy for commercial banks we test whether banks investment and financing policies can be explained by tax status we document changes in bank holdings of municipal bonds in response to changes in tax rules relating to deductibility of interest expense we also document an association between banks marginal tax rates and their investment and financing decisions which is consistent with the existence of tax clienteles however banks do not sort themselves perfectly into investment and financing clienteles because of adjustment costs we posit specific types of transaction cost impediments to tax planning and document that banks apparently trade off these costs against tax planning benefits article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

as certain as debt and taxes estimating the tax sensitivity of leverage from state tax changes abstract using staggered corporate income tax changes across u s states we show that taxes have a first order effect on capital structure firms increase leverage by around 40 basis points for every percentage point tax increase consistent with dynamic tradeoff theory the effect is asymmetric leverage does not respond to tax cuts this is true even within firm tax increases that are later reversed nonetheless lead to permanent leverage increases the treatment effects are heterogeneous and confirm the tax channel tax sensitivity is greater among profitable and investment grade firms which respectively have a greater marginal tax benefit and lower marginal cost of issuing debt

the effects of railroad development on price convergence among the states of the usa from 1866 to 1906 this study examines the effects of the reduced transaction costs on the price behaviours in the second half of the nineteenth century where declines in transaction costs were mainly caused by railroad development during this period it employs a panel test introduced by levin and lin 1992 on the convergence of wheat and corn prices using a panel of 48 us states from 1866 to 1906 the results show that by decreasing transportation costs railroads played an important role in price convergence among states of the usa for wheat and corn during the postbellum period

interactions of corporate financing and investment decisions the effects of agency conflicts abstract we examine interactions between flexible financing and investment decisions in a model with stockholder bondholder conflicts over investment policy we find that financial flexibility encourages the choice of short term debt thereby dramatically reducing the agency costs of under and overinvestment however the reduction in agency costs may not encourage the firm to increase leverage since the firm s initial debt level choice depends on the type of growth options in its investment opportunity set the model has a number of testable predictions for the joint choice of leverage and maturity and how these choices interact with a firm s growth opportunities

how does industry affect firm financial structure we examine the importance of industry to firm level financial and real decisions we find that in addition to standard industry fixed effects financial structure also depends on a firm s position within its industry in competitive industries a firm s financial leverage depends on its natural hedge its proximity to the median industry capital labor ratio the actions of other firms in the industry and its status as entrant incumbent or exiting firm financial leverage is higher and less dispersed in concentrated industries where strategic debt interactions are also stronger but a firm s natural hedge is not significant our results show that financial structure technology and risk are jointly determined within industries these findings are consistent with recent industry equilibrium models of financial structure copyright 2005 oxford university press

trade credit and taxes abstract this paper analyzes the extent to which tax differences affect the use of trade credit u s owned affiliates in low tax countries use trade credit to lend whereas those in high tax countries use trade credit to borrow 10 lower local tax rates are associated with net trade credit positions that are 1 4 higher as a fraction of sales the use of trade credit to get capital out of low tax low return environments is also illustrated by the temporary repatriation tax holiday in 2005 which was used most intensively by affiliates with positive net trade credit positions

hedging financing and investment decisions theory and empirical tests abstract in this paper we theoretically and empirically examine the interaction between hedging financing and investment decisions a simple equilibrium model with costly financial distress suggests that as firms become more efficient at risky investments vis a vis low risk investments they will borrow less invest more in risky assets and hedge more the model also predicts a positive relationship between hedging and leverage a result consistent with debt capacity arguments we test the model empirically using a simultaneous equations framework to investigate the determinants of firm level hedging financing and investing decisions the results strongly support the hypothesis that the hedging financing and investment decisions are jointly determined in addition we find strong support for the central hypothesis that firms more efficient investing in risky technologies more aggressively hedge and use less debt financing in order to maximize their comparative advantage

purchasing power parity over two centuries trends and nonlinearity in two recent contributions lothian and taylor and cuddington and liang produced empirical evidence that annual data for the dollar sterling real exchange rate spanning two centuries exhibited a non linear deterministic trend this trend could be proxying harrod balassa samuelson effects lothian and taylor showed that a linear stationary autoregressive mode which embodied a cubic trend implied much faster mean reversion of the real exchange rate to shocks than a model that excluded the trend this article shows that both non linearity and a deterministic trend can be allowed for in a theoretically appealing manner and that the fitted models provide a parsimonious explanation of both the dollar sterling and franc sterling real exchange rates over the two centuries of data generalized impulse response function analysis of the models demonstrates that the speed of adjustment to shocks can be even faster when trends are considered

potential pitfalls in determining multiple structural changes with an application to purchasing power parity we investigate the empirical performance of the bai and perron multiple structural change tests and show that the use of their critical values may cause severe size distortions in persistent series to correct these size distortions while maintaining a good power we implement the bai structural change test and extend it in two directions developing a new procedure to choose the number of breaks and a restricted version that specifically models breaks that imply mean or trend reversion using our new methodologies we reconcile the results of unit root tests with those of tests for structural change when testing for long run purchasing power parity

purchasing power parity with flexible fourier stationary test for central and eastern european countries this study applies stationary test with a fourier function proposed by enders and lee 2004 2009 to test the validity of long run purchasing power parity ppp to assess the nonstationary properties of the real exchange rate rer for seven central and eastern european countries ceecs we find that our approximation has higher power to detect u shaped breaks and smooth breaks than linear method if the true data generating process of exchange rate is in fact a stationary nonlinear process we examine the validity of ppp from the nonlinear point of view and provide robust evidence clearly indicating that the ppp holds true for all ceecs our findings point out their exchange rate adjustment is mean reversion towards ppp equilibrium values in a nonlinear way

debt and the marginal tax rate abstract do taxes affect corporate debt policy this paper tests whether the incremental use of debt is positively related to simulated firm specific marginal tax rates that account for net operating losses investment tax credits and the alternative minimum tax the simulated marginal tax rates exhibit substantial variation due to the dynamics of the tax code tax regime shifts business cycle effects and the progressive nature of the statutory tax schedule using annual data from more than 10 000 firms for the years 1980 1992 i provide evidence which indicates that high tax rate firms issue more debt than their low tax rate counterparts

generalized long memory and mean reversion of the real exchange rate definitive evidence regarding a rapid mean reversion of the real exchange rate is not present when using standard linear methodology including unit root tests and fractional integration to consider the robustness of these results we use an encompassing model the gegenbauer autoregressive moving average garma model which nests as special cases the existing linear methods the garma model accommodates a complete notion of persistence and allows shocks to dissipate slowly in a cyclical manner we find evidence supporting a weak version of purchasing power parity where equilibrium errors are long memory with strongly persistent cycles however this new form of cyclical mean reversion is likely too slow to be economically meaningful the inability to find a strong equilibrium attractor process using a very general encompassing linear methodology provides support for the recent models that allow for a nonlinear attraction process and for shifting real exchange rate equilibria

sticky prices and time to equilibrium evidence from asia pacific trade related economies the theoretical relation between exchange rate and prices has been a difficult proposition to find supporting evidence despite many studies of developed economies using standard research methods the exchange rate to price relation appears to hold in the long run only a result consistent with sticky price hypothesis there is a need to add to this sticky price literature by examining more yet studied economies to this area of research this article presents results to support long run equilibrium in the asia pacific economies as being 5 years the methodology is used to group countries with high trade intensity within a region and value weight the resulting variables to test the theory in a regional context our positive finding on the long run equilibrium we believe helps in some ways to enrich the literature on the exchange rate behaviour of an important region for world trade

explaining time variation in geographic price dispersion the pattern of price dispersion significantly varies over time and across locations using a detailed dataset with product level retail prices we examine the role of time varying factors in shapin

have the tax benefits of debt been overestimated abstract we re examine the claim that many corporations are underleveraged in that they fail to take full advantage of debt tax shields we show prior results suggesting underleverage stems from biased estimates of tax benefits from interest deductions we develop improved estimates of marginal tax rates using a non parametric procedure that produces more accurate estimates of the distribution of future taxable income we show that additional debt would provide firms with much smaller tax benefits than previously thought and when expected distress costs and difficult to measure non debt tax shields are also considered it appears plausible that most firms have tax efficient capital structures

validity of purchasing power parity for selected latin american countries linear and non linear unit root tests abstract the aim of this study is to examine empirically the validity of ppp in the context of unit root tests based on linear and non linear models of the real effective exchange rate of argentina brazil chile colombia mexico peru and venezuela for this purpose we apply the harvey et al 2008 linearity test and the non linear unit root test kruse 2011 the results show that the series with linear characteristics are argentina brazil chile colombia and peru and those with non linear characteristics are mexico and venezuela the linear unit root tests indicate that the real effective exchange rate is stationary for chile and peru and the non linear unit root tests evidence that mexico is stationary in the period analyzed the results show support for the validity of ppp in only three of the seven countries

u s worldwide taxation and domestic mergers and acquisitions a discussion abstract harris and o brien 2018 investigate whether u s tax policy distorts u s multinationals mncs investment they find that mncs facing higher repatriation tax costs engage in fewer domestic acquisitions the study re examines the results in two prior studies that found no effect hanlon et al 2015 and a positive effect martin et al 2015 by introducing a new proxy for repatriation tax costs a binary variable for whether the mnc uses the double irish structure we critique the theory underlying the prediction as well as the proxy we conclude that caution should be exercised in taking the results at face value

optimal priority structure capital structure and investment we study the interaction between financing and investment decisions in a dynamic model where the firm has multiple debt issues and equityholders choose the timing of investment jointly optimal capital and priority structures can virtually eliminate investment distortions because debt priority serves as a dynamically optimal contract examining the relative efficiency of priority rules observed in practice we develop several predictions about how firms adjust their priority structure in response to changes in leverage credit conditions and firm fundamentals notably financially unconstrained firms with few growth opportunities prefer senior debt while financially constrained firms with or without growth opportunities prefer junior debt moreover lower rated firms are predicted to spread priority across debt classes finally our analysis has a number of important implications for empirical capital structure research including the relations between market leverage book leverage and credit spreads and tobin s q the influence of firm fundamentals on the agency cost of debt and the conservative debt policy puzzle the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

human capital capital structure and employee pay an empirical analysis abstract we test the predictions of titman 1984 and berk stanton and zechner 2010 by examining the effect of leverage on labor costs leverage has a significantly positive impact on cash equity based and total compensation of chief executive officers ceos compensation of new ceos hired from outside the firm is positively related to prior year firm leverage in addition leverage has a positive and significant impact on average employee pay the incremental total labor expenses associated with an increase in leverage are large enough to offset the incremental tax benefits of debt the empirical evidence supports the theoretical prediction that labor costs limit the use of debt

taxes and capital structure evidence from firms response to the tax reform act of 1986 while the theoretical relation between taxes and capital structure has been extensively analyzed the empirical evidence on this issue has thus far been inconclusive one of the main difficulties confronting previous empirical studies of the cross sectional relationship between taxes and leverage was the control of intervening variables the tax reform act of 1986 tra which drastically changed the tax regime provides a unique opportunity to assess the interaction between taxes and leverage decisions in a controlled environment the authors test the relationship between leverage and certain tax related variables for a large sample of companies in the years surrounding the enactment of tra the results support the tax based theories of capital structure the findings indicate that there exists a substitution effect between debt and nondebt tax shields and that both corporate and personal tax rates affect leverage decisions coauthors are dan givoly aharon r ofer and oded sarig article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

purchasing power parity over two centuries strengthening the case for real exchange rate stability a reply to cuddington and liang cuddington and liang 2000 purchasing power parity over two centuries journal of international money and finance 19 751 755 examine the long span of sterling dollar real exchange rate data of lothian and taylor 1996 real exchange rate behavior the recent float from the perspective of the past two centuries journal of political economy 104 488 509 and claim to reject long run purchasing power parity by fitting time trends or by considering very high order autoregresssive representations this reply demonstrates however that the central claims of lothian and taylor are in fact strengthened by the implications of cuddington and liang s analysis in that while the economic importance of introducing trend terms is slight this leads to a faster estimated speed of mean reversion c 2000 elsevier science ltd all rights reserved jel classification f31 f41 c22

corporate tax incentives and capital structure new evidence from uk firm level tax returns abstract we investigate how companies capital structure is affected by corporate income taxes using confidential company level tax returns for a large sample of uk firms exploiting variation in companies marginal tax rates we find a positive and substantial long run tax effect on leverage leverage responds more to decreases in the marginal tax rate and it responds to changes in the marginal rather than the average tax rate most importantly we find that the marginal tax rate based on tax returns has greater explanatory power for companies leverage than the marginal tax rate based on financial statements our study suggests that errors in the measurement for tax incentives using financial statements could lead to underestimation of the tax effects on capital structure

capital flows real exchange rate misalignment and ppp tests in emerging market countries the economic performance of emerging markets has significant impacts on economic growth and volatility of macroeconomic indicators in various countries emerging markets accounted for 20 43 of global exports during the period 1970 2005 and held 70 of global foreign reserves in recent years more than 50 of the exports from the euro area japan and the united states go to emerging markets and other developing countries the globalization of capital flows is facilitated by technological innovations and excellent information networks coupled with sharp increases in savings that are directed into financial instruments across borders the use of purchasing power parity ppp as a benchmark in exchange rate policy reforms assumes the existence of a stable relationship between the exchange rate and the ratio of price levels in two countries this article investigates whether or not long run ppp holds in emerging markets johansen s cointegration technique is used with annual data in analysing the relationsh

the debt tax shield in general equilibrium abstract we study the general equilibrium effects of the corporate debt tax shield in an endowment economy with a redistributive tax system that taxes firm profits and household income and redistributes tax revenues in an attempt to harmonize households lifetime consumption opportunities in general equilibrium the debt tax shield not only affects corporate capital structure and valuation but also causes poorer households to consume more and save less at a younger age without the debt tax shield the same welfare improvements for poorer households are achievable with significantly lower tax rates

real exchange rates and time varying trade costs this paper re examines the empirical modeling of purchasing power parity ppp deviations in the presence of commodity market frictions first we show that a specific type of smooth transition models can closely approximate the functional form of the theoretical adjustment mechanism derived by dumas 1992 dynamic equilibrium and the real exchange rate in a spatially separated world review of financial studies 5 2153 180 for the case of constant as well as changing trade costs second we develop for the first time an empirical model of the real exchange rate which allows for changes in the degree of market integration by employing a long span of data on the dollar sterling real exchange rate and a micro founded proxy for trade frictions we provide novel evidence of a significant relationship between the persistence of the real exchange rate and the level of trade costs this finding suggests that both the difficulty of detecting ppp and the extend of rogoff s puzzle vary over time with the degree of trade restrictiveness finally we highlight policy repercussions of our results

the debt equity choice when firms adjust their capital structures they tend to move toward a target debt ratio that is consistent with theories based on tradeoffs between the costs and benefits of debt in contrast to previous empirical work out tests explicitly account for the fact that firms may face impediments to movements toward their target ratio and that the target ratio may change over time as the firm s profitability and stock price change a separate analysis of the size of the issue and repurchase transactions suggests that the deviation between the actual and the target ratios plays a more important role in the repurchase decision than in the issuance decision

empirical evidence on the currency carry trade 1900 2012 abstract most of the currency literature investigates the risk and return characteristics of the currency carry trade after the collapse of the bretton woods system in order to gauge the long term currency carry premium we extend the sample to 20 currencies over the period 1900 to 2012 we find modest sharpe ratios in the range of 0 2 0 4 for carry trading over this period this is markedly lower than the sharpe ratios above 0 6 reported for recent sample periods we document that carry trading occasionally incurs substantial losses which fits well with risk based explanations for deviations from uncovered interest parity we find that large carry trading losses do not necessarily coincide with large losses in global equity markets our results help to better understand the source and nature of excess returns on the carry trade

purchasing power parity over two centuries abstract this paper re examines the purchasing power parity hypothesis for the dollar sterling exchange rate using the two centuries of data from lothian and taylor lt 1996 real exchange rate behavior the recent float from the perspective of the past two centuries journal of political economy 104 3 488 509 unlike lt we conclude that the dollar sterling rer is nonstationary implying a rejection of the long run ppp hypothesis the differences in our conclusions are explained by 1 sensitivity of adf unit root tests to the choice of lag length and or 2 the presence of significant time trends in the adf or phillips perron unit root test equations

can tax convexity be ignored in corporate financing decisions abstract the standard modeling practice in corporate finance has been to assume a linear tax schedule this paper extends the structural contingent claim model of corporate finance to incorporate a more realistic convex tax schedule it is shown that tax convexity raises the optimal default boundary and thus increases the likelihood of default and also reduces the optimal leverage ratio while the former effect seems insignificant in general the effect of tax convexity on the optimal leverage ratio can be quantitatively significant we conclude that tax convexity should not be ignored in corporate financing decisions and theoretical models should use a convex tax schedule instead of a linear one thus the short answer to the question in the title is no

real exchange rate assessment in the gcc countries a trade elasticities approach this article adopts new panel econometric methods to assess real exchange rate alignment with economic fundamentals in the countries of the gulf cooperation council gcc using a theoretical approach popularized by paul krugman in the late 1980s results from panel econometric applications of the krugman model yield low levels of real exchange rate undervaluation in the gcc countries although indicating persistence of undervaluation albeit statistically low into the medium term they also show that the recent real exchange rate undervaluation could be characterized as due to short run frictions and adjustment costs associated with continued depreciation of the us dollar to which gcc countries currencies are pegged further failure to find supporting evidence for the marshall lerner condition underscores the propriety of using fiscal policy rather than exchange rate policy to address recent inflationary pressures and help resolve lingering global financial imbalances

revisiting the persistence of real exchange rates abstract in this paper we provide new and robust evidence that panel regressions significantly reduce the estimated half lives of real exchange rates in a sample of 21 countries these results are obtained under dynamic panel models that control for non purchasing power parity ppp equilibria small sample bias does not have a significant impact on half lives since the increase in the half life arising from the bias is more than compensated by the decrease of the half life due to the control of non ppp equilibria among the two sources of non ppp equilibria i e first the balassa samuelson effect and second smooth shifts in mean we find that under a heterogeneous panel model the first source results in a larger reduction of half lives

the role of target leverage in security issues and repurchases the paper examines whether security issues and repurchases adjust the capital structure toward the target the time series patterns of debt ratios imply that only debt reductions are initiated to offset the accumulated deviation from target leverage the importance of target leverage in earlier debt equity choice studies is driven by the subsample of equity issues accompanied by debt reductions unlike debt issues and reductions equity issues and repurchases have no significant lasting effect on capital structure therefore even firms that have target debt ratios can engage in timing the equity market

the trade off model with mean reverting earnings theory and empirical tests the trade off theory of capital structure predicts a positive relationship between earnings and leverage contradictory to well established empirical evidence since corporate earnings are known to be mean reverting we reformulate the trade off model with mean reverting earnings we show that with mean reverting earnings there should be a negative relationship between optimal leverage and the current earnings level the model also illustrates the importance of the earnings reversion parameter in the determination of capital structure the major implications of the model are supported by empirical tests carried out with a sample of firms in the s p 500 index

social capital and the cost of equity abstract we find that a firm s cost of equity is inversely related to the level of social capital in the state where the firm is headquartered further the cost of equity declines when firms move their headquarters from a low social capital state to a state with higher social capital the negative relation between social capital and the cost of equity is statistically significant only for firms facing relatively low levels of product market competition and is not significant for firms with good firm specific reputations we interpret these findings as indicating that social capital serves as a societal monitoring mechanism and can be value enhancing for firms that are perceived as having greater agency problems and face weak product market monitoring

earnings management through transaction structuring contingent convertible debt and diluted earnings per share in this article we examine whether firms structure their convertible bond transactions to manage diluted earnings per share eps we find that the likelihood of firms issuing contingent convertible bonds cocos which are often excluded from diluted eps calculations under statement of financial accounting standard sfas 128 is significantly associated with the reduction that would occur in diluted eps if the bonds were traditionally structured we also document that firms use of eps based compensation contracts significantly affects the likelihood of coco issuance and find weak evidence that reputation costs measured using earnings restatement data play a role in the structuring decision these results are robust to controlling for alternative motivations for issuing cocos including tax and dilution arguments in addition an examination of announcement returns reveals that investors view the net benefits and costs of cocos as offsetting one another our results contribute to the literature on earnings management diluted eps financial reporting costs and financial innovation

is the relationship between prices and exchange rates homogeneous empirical tests of purchasing power parity ppp are implicitly based on the conditions of symmetry and proportionality of the price coefficients we investigate a separate condition which we term homogeneity specifically while there may be factors that drive a wedge between prices and exchange rates when these factors are held constant we would expect a change in exchange rates to be associated with a proportional or homogeneous change in prices to test for the existence of homogeneity in prices we conduct two experiments first we apply a time varying coefficient procedure to nine euro area countries as well as the euro area as a whole during the monthly sample period 1999 m1 to 2011 m3 second we apply the same procedure to the same group of countries plus canada japan and mexico over the longer period 1957 m4 to 2011 m3 we find that averages of the price coefficients corrected for specification biases are uniformly homogeneous in the long run providing strong support for ppp

revisiting purchasing power parity for east asian countries using the rank test for nonlinear cointegration this study applies a simple and powerful nonlinear rank test proposed by breitung 2001 to test the validity of long run purchasing power parity ppp in a sample of east asian countries over the period march 1985 september 2008 the empirical results indicate that ppp holds for all of east asian countries studied and the nominal exchange rate domestic consumer price index cpi and the us cpi are all linearly interrelated with the exception of china our results have important policy implications for these east asian countries under study

governance infrastructure and us foreign direct investment this paper examines the statistical importance of governance infrastructure as a determinant of us foreign direct investment fdi in broad terms governance infrastructure represents attributes of legislation regulation and legal systems that condition freedom of transacting security of property rights and transparency of government and legal processes our econometric analysis uses a two stage estimation procedure in the first stage the probability that a country is an fdi recipient is estimated the results indicate that countries that fail to achieve a minimum threshold of effective governance are unlikely to receive any us fdi countries that receive no us fdi are typically countries that do not promote free and transparent markets that have ineffective governments and that often have legal systems that are not rooted in english common law in the second stage the analysis is restricted to those countries that did receive fdi flows the estimated equations focus on the determinants of the amount of fdi received given that a country is a recipient of us fdi governance infrastructure including the nature of the legal system is an important determinant of the amount received

institutional determinants of capital structure adjustment speeds abstract many authors relate a firm s performance to legal and political features and the regulatory environment in which it operates this article compares firms capital structure adjustments across countries and investigates whether institutional differences help explain the variance in estimated adjustment speeds we find that legal and financial traditions significantly correlate with firm adjustment speeds more narrowly institutional features also relate to adjustment speeds consistent with the hypothesis that better institutions lower the transaction costs associated with adjusting a firm s leverage such associations between institutional arrangements and leverage adjustment speeds are consistent with the dynamic trade off theory of capital structure choice

a new analysis of the determinants of the real dollar sterling exchange rate 1871 1994 the high persistence of both ppp deviations and the proxy variables for the equilibrium real rate might create a problem of spurious coefficient significance within recently applied nonlinear models to illustrate we consider the real dollar sterling exchange rate over the period 1871 1994 a nonlinear estar process with a time varying equilibrium seems to parsimoniously fit the data appropriate significance levels are obtained using the wild bootstrap method to adequately capture the conditional heteroskedasticity in the data our results provide further evidence for the nonlinear model and the implied speed of adjustment is found to be substantially faster than previously reported in the literature

testing the monetary model of exchange rate determination new evidence from a century of data abstract we test the long run monetary model of exchange rate determination for a collection of 14 industrialized countries using data spanning the late nineteenth or early twentieth century to the late twentieth century interestingly we find support for a simple form of the long run monetary model in over half of the countries we consider for these countries we estimate vector error correction models to investigate the adjustment process to the long run monetary equilibrium in the spirit of meese and rogoff journal of international economics 14 1983 3 24 we also compare nominal exchange rate forecasts based on monetary fundamentals to those based on a naive random walk model

depreciation policy changes tax earnings management and investment opportunity incentives abstract contrary to previous studies we find managers change depreciation policies in predictable ways we identify three dimensions of depreciation policy changes whether it is a method change or an estimate revision whether it is income increasing or decreasing and whether it applies to new assets only or both new and existing assets this disaggregation leads to three findings first a 1981 tax law altered the frequency of estimate revisions and method changes second firms adopting income increasing method changes for all assets experience worse performance than those adopting such changes only for new assets finally non income increasing policy changes are associated with changes in investment opportunities

flexible fourier stationary test in purchasing power parity for african countries this study applies stationary test with a fourier function proposed by enders and lee 2004 2009 to test the validity of long run purchasing power parity ppp to assess the nonstationary properties of the real exchange rate for 20 african countries we find that our approximation has higher power to detect u shaped breaks and smooth breaks than linear method if the true data generating process of exchange rate is in fact a stationary nonlinear process we examine the validity of ppp from the nonlinear point of view and provide robust evidence clearly indicate that ppp holds true for almost african countries our findings point out their exchange rate adjustment is mean reversion towards ppp equilibrium values in a nonlinear way

long run purchasing power parity with asymmetric adjustment further evidence from african countries this study applies threshold cointegration test advanced by enders and siklos 2001 to investigate the properties of asymmetric adjustment in long run purchasing power parity ppp in 22 selected african countries during the period of january 1980 to december 2003 although there is evidence of long run ppp for most african countries the adjustment mechanism is asymmetric these results have particularly important policy implications for african countries

the effect of capital structure on a firm s liquidation decision abstract a firm s liquidation can impose costs on its customers workers and suppliers an agency relationship between these individuals and the firm exists in that the liquidation decision controlled by the firm as the agent affects other individuals the customers workers and suppliers as principals the analysis in this paper suggests that capital structure can control the incentive conflict problem of this relationship by serving as a pre positioning or bonding mechanism appropriate selection of capital structure assures that incentives are aligned so that the firm implements the ex ante value maximizing liquidation policy

on the debt capacity of growth options we relate the value of growth options in the firm s investment opportunity set to the level of debt in the firm s capital structure underinestment costs of debt increase and free cash flow benefits fall with additional growth options thus if debt capacity is defined as the amount of debt the firm optimally adds for an incremental project then the debt capacity of growth options is negative this result implies that book leverage should fall with the addition of growth options our tests using a large sample of industrial firms confirm this prediction

capital structure and interaction among firms in output markets theory and evidence i develop a simple model that examines the relations between the extent of competitive interaction among firms in output markets their capital structures and the aggressiveness of their operating strategies a firm s optimal leverage is related to the degree to which its operating strategy affects its rivals value functions and resulting optimal output market choices this relation is positive regardless of whether the competition in output markets is in strategic substitutes or in strategic complements i test the model s prediction using two proxies for the extent of competitive interaction among firms the empirical evidence provides support for the model

overall review of pumped hydro energy storage in china status quo operation mechanism and policy barriers abstract with the integration of increased variable renewable energy generation and advent of liberalized electricity market much attention has been devoted on the development of pumped hydro energy storage phes as it has many prominent advantages of ensuring the safe and steady operation of power grid in china phes has met a booming periods for the last ten years currently there are 24 phes stations with an installed capacity of 16 95 gw while government s target of 2020 is 50 02 gw in this paper we provide an overall review of china s phes development with a detailed presentation of the installed capacity and distribution of existing and proposed phes stations examine 4 typical stations in order to give a good description for the practical functions of phes in power grid analyze the management mode and price mechanism of phes operation and point out the barriers in phes development in china state grid corporation of china sgcc which are making great efforts on china s phes development is discussed as a role model on that basis we suggest phes in the fast developing period should be temporarily operated and scheduled by grid companies in terms of exertion of its positive effects while government should also take responsibility to subsidize on the stations operation to relieve the price pressure of the ever growing integration of renewable energy

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

nonlinearities in real exchange rate determination do african exchange rates follow a random walk in this article we aim at modelling the long run behaviour of the real effective exchange rates reer for a pool of african countries not much attention has been paid to this group of countries in particular to the existence of nonlinearities in the long run path of such a variable controlling for two sources of nonlinearities i e asymmetric adjustment to equilibrium and nonlinear deterministic trends allows us to gain some insight about the behaviour of the african reer we find that these sources of nonlinearities help us to explain the apparent unit root behaviour found applying linear unit root tests for most of the countries

do personal taxes affect capital structure evidence from the 2003 tax cut abstract because the personal tax treatments of interest and dividend income likely affect the relative cost of debt and equity financing a sharp change in tax treatment could affect firms optimal leverage this paper examines the effect of the 2003 equity income tax cut on firms debt usage because this tax cut affected only individual investors we can use a difference in differences method to identify the effect of personal tax on firms leverage previous research has found that the 2003 tax cut encouraged dividend payouts and reduced the cost of equity but it provides no link to equilibrium leverage ratios we estimate that the tax cut causes the affected firms leverage to decrease by about 5 percentage points furthermore we show that the effects of the tax cut are stronger for firms with lower marginal corporate tax rates and for firms that are not financially constrained consistent with our theoretical predictions overall we find strong evidence that personal tax is an important determinant of firms optimal leverage

the cause of an integral correction mechanism of the real exchange rate abstract i find that rabanal and rubio ramirez 2015 s international real business cycle model can explain an integral correction mechanism of the real exchange rate an input adjustment cost in their model implies that the real exchange appreciates following a positive domestic productivity shock and reverts to steady state quickly but presents a long run cyclical movement these particular dynamics help explain the ppp puzzle

parity reversion persistence in real exchange rates middle income country case this article investigates purchasing power parity ppp in the specific context of middle income countries to circumvent the low power of traditional stationarity tests augmented dickey fuller and phillips perron tests it performs variance ratio and fractional integration tests in addition to perron s test that accounts for potential structural changes in real exchange rate processes beyond estimating half life shocks to ppp this article attempts to explain these estimates using a set of country specific variables as suggested by economic theory the evidence suggests that reversion to parity tends to be faster in high inflation countries and that productivity improvement leads to a higher level of persistence openness to trade tends to reduce the extent of deviations from parity but this result does not appear to be statistically robust evidence shows also that deviations are less persistent under a fixed exchange rate regime and under unrestricted capital mobility

foreign tax credit limitations and capital structure decisions this paper extends prior studies by collins and shackelford 1992 and froot and hines 1995 that investigate the impact of foreign tax credit ftc limitations on firms capital structure decisions binding ftc limitations reduce the marginal tax benefit of domestic interest deductions and provide incentives for firms to substitute equity financing for domestic debt collins and shackelford 1992 document a positive relation between the impact of ftc limitations and changes in firms preferred stock accounts during 1986 89 froot and hines 1995 unable to isolate domestic debt changes document that firms with excess ftcs decreased their worldwide debt growth in 1986 91 but they do not find evidence that ftc limitations influence a shift away from debt and into preferred stock financing thus these two studies find conflicting evidence regarding whether ftc limitations influence firms to use preferred stock as a financing vehicle and neither study provides direct evidence regarding a decline in domestic debt or a potential common

taxes and firm size abstract firm size has been used as a proxy for the firm s political costs and hence managers proclivity to choose income reducing accounting procedures this study provides additional evidence on this topic by examining the association between firm size and effective corporate tax rates the latter are one component of a firm s political costs the roughly fifty largest u s exchange listed firms in particular oil and gas companies and manufacturing firms have significantly higher worldwide tax rates than other firms these higher tax rates are observed primarily after the implementation of the u s 1969 tax reform act and after the opec countries raised their tax rates on u s oil producers the findings which are insensitive to alternative sources of data alternative measures of firm size and alternative measures of effective tax rates are consistent with the use in previous studies of firm size as a proxy for the firm s political costs

new evidence on nominal exchange rate predictability abstract the meese rogoff puzzle one of the well known puzzles in international economics concerns the weak relationship between nominal exchange rates and market fundamentals the purpose of this paper is to show that market fundamentals do in fact matter in forecasting nominal exchange rates in particular we emphasize the importance of the harrod balassa samuelson effect in modeling deviations from purchasing power parity based on the post bretton woods period we provide solid out of sample evidence that rejects the random walk forecast model at medium term and long term forecast horizons we also find mild evidence for out of sample predictability of nominal exchange rates over the short term

the impact of depreciation savings on investment evidence from the corporate alternative minimum tax over the past decade the united states has offered investment incentives in the form of larger depreciation savings namely bonus depreciation the neoclassical investment model implies that investment responds to changes in depreciation savings but there have been few direct attempts to investigate this implication this paper examines investment patterns surrounding the 1999 shortening of the alternative minimum tax amt depreciation recovery periods finding strong evidence that firms subject to the amt increase investment in response to the amt reform the empirical results show that firms subject to the amt increase their investment measured as the ratio of capital expenditures to capital stock by around 0 0418 to 0 0622 compared to firms subject to the regular tax given their average annual investment rate of approximately 0 27 during this period the results imply a relative increase in investment of 15 23 by contrast i find that the 2002 introduction of bonus depreciation available both for firms subject to the regular tax and for firms subject to the amt affects both groups of firms similarly the estimation uses an empirical specification developed from the summers 1981 tax adjusted q model and the results imply that the responsiveness of investment to the tax term is somewhat larger than previously estimated

revisiting purchasing power parity in oecd this study revisits purchasing power parity theory ppp in the 34 oecd countries during january 1994 august 2013 we use a new panel stationary test with both sharp breaks and smooth shifts a novel approach to panel unit root testing proposed by bahmani oskooee et al 2014 the results indicate that the ppp holds in half of the 34 oecd countries these results indicate the importance of proper modelling of both sharp breaks and smooth shifts in real effective exchange rate series of oecd countries