This paper aims to examine the design of optimal incentives for a firm’s tax department in the presence of information asymmetry.
Abstract
Purpose
This paper aims to examine the design of optimal incentives for a firm’s tax department in the presence of information asymmetry.
Design/methodology/approach
This paper provides a theoretical model to examine the design of optimal incentives. The focus is on a situation in which a risk-averse tax department has private information about its efficiency type or effort to be exerted before the firm sets the incentive schemes.
Findings
This paper shows that a tax department’s risk aversion leads to a decline in the fraction of the cost borne by the tax department. It also shows that the optimal contract schemes should be designed to filter out as much uncontrollable risk as possible by using third-party information relevant to a tax department’s realized cost.
Social implications
It contributes to a better understanding of the impact of corporate incentive plans on firms’ tax practices. This study, by designing a theoretical model, helps explain why there exist differences in tax planning across firms based on the finding that incentives for tax planning activities differ across firms.
Originality/value
This paper is the first study that considers the situation in which tax managers’ risk-averse and types, as well as relevant information collected by the firms, can be used to set up incentive schemes and investigates whether and how the incentive schemes will be affected when firms improve their prior information by acquiring relevant information before the tax department acts.
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The purpose of this paper is to explore the impact of information acquisition for the purpose of differentiating agencies operating in different localities on the design of…
Abstract
Purpose
The purpose of this paper is to explore the impact of information acquisition for the purpose of differentiating agencies operating in different localities on the design of optimal funding.
Design/methodology/approach
This paper is a theoretical study. The focus is on a situation in which agencies providing public services have perfect private information about their cost conditions before the government sets the formula for funding.
Findings
The authors show that, using a free signal correlated with costs of operation to differentiate agencies situated in different localities, the government can achieve better welfare for households across regions. However, when there exist non-negligible costs involved in the differentiating process, it may pay to acquire information only if the signal acquired is informative enough, i.e., the correlation between the signal and the agencies’ true cost conditions is strong enough.
Social implications
This paper is of interest to academics and policy makers. Acquiring information for tagging can be viewed as a preliminary screening process. Different types are then endowed with distinctly different incentives to control the costs of operating their agencies. Specifically, when the observed cost signal and the true cost conditions of agencies are positively correlated, the government should optimally be more aggressive in distorting the high-cost type’s effort decision by giving less incentive for the low-cost type agencies to cut costs than in the no-differentiation case, and vice versa.
Originality/value
This paper is the first study that explores the impact of information acquisition on the design of optimal funding for public service agencies.
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– This paper examines the effect that foreign bank entry into China had on transaction fees and service fees charged by domestic Chinese banks.
Abstract
Purpose
This paper examines the effect that foreign bank entry into China had on transaction fees and service fees charged by domestic Chinese banks.
Design/methodology/approach
This paper is an empirical study using financial data for listed Chinese banks collected from the China Stock Market Financial Statement Database.
Findings
This paper finds that domestic banks cut transaction fees and service fees shortly before the entry into China of foreign banks, and domestic banks did not cut transaction fees and service fees after foreign banks entered into China.
Research limitations/implications
This paper does not examine any non-price strategies employed by local Chinese banks in response to the entry of foreign banks.
Originality/value
This is the first study to examine transaction fees and service fees charged by domestic Chinese banks in response to the entry of foreign banks into China.
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The purpose of this paper is to examine the distributional impact of personal income tax in Canada and China over the most recent decade.
Abstract
Purpose
The purpose of this paper is to examine the distributional impact of personal income tax in Canada and China over the most recent decade.
Design/methodology/approach
The Urban Household Survey in China and the Canadian Socio‐Economic Information Management System data are employed.
Findings
It was found that, in both Canada and China, the personal income taxes are progressive, that is, tax payments and average tax rates are increasing in the income share of high‐income taxpayers.
Research limitations/implications
This paper does not explore the connection between tax progressivity differences and social, political, and cultural differences in the two countries.
Practical implications
This paper is of interest to policy makers, economists, and academics, who seek to design an income tax system which can mitigate income inequity efficiently. Given that income taxes have changed in China in recent years, future studies should be conducted to compare the distributional impacts of the new tax system against those of the old tax system.
Originality/value
This is the first study of distributional impact of income tax in China. This is also the first study to compare tax distribution between China and a developed country.
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This paper provides evidence suggesting capital gains tax affects stock returns and trading volume. The Canadian federal government budget of May 23, 1985 provided individual…
Abstract
This paper provides evidence suggesting capital gains tax affects stock returns and trading volume. The Canadian federal government budget of May 23, 1985 provided individual taxpayers with a cumulative tax exemption for capital gains, up to a lifetime limit of $500,000. The empirical results, using daily stock return and trading volume data from the Toronto Stock Exchange, show that stock prices decreased three days before the announcement of the lifetime capital gains exemption. The empirical results also show that stock trading volume increased two days and four days before the announcement and five days following the announcement. These results are consistent with the argument that the capital gains tax constrained some individual shareholders from selling appreciated shares (often called “lock‐in effect”).
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This paper seeks to examine the effect of ownership concentration, inside ownership and state ownership on the R&D spending practices for China's listed firms. The paper argues…
Abstract
Purpose
This paper seeks to examine the effect of ownership concentration, inside ownership and state ownership on the R&D spending practices for China's listed firms. The paper argues that corporate ownership structures including ownership concentration, inside ownership and state ownership are important for corporate expenditures on R&D in China, whose firms present a high ownership concentration and a high level of state ownership.
Design/methodology/approach
The paper takes the form of an empirical study using a sample of 780 listed Chinese firms for six years from 2000 to 2005.
Findings
It is found that firms with concentrated share ownership have lower R&D spending, and firms with inside ownership have lower R&D spending. However, firms with a higher level of state ownership spend more on R&D.
Research limitations/implications
Given that corporate ownership structure and tax policy have changed dramatically in China in recent years, future studies should be conducted to explore the association between firms' R&D investment activities and those ownership structure and tax policy changes.
Social implications
This study is of interest to the policy makers, corporate management, and academics who wish to examine corporate R&D and innovation activities and those factors, including ownership structure, which are associated with R&D investment decisions.
Originality/value
This is the first study that examines the relationship between ownership and R&D spending for Chinese listed firms.