John R. Robinson

Analogical transfer and expertise in legal reasoning

Abstract Analogical transfer and its relation to expertise is examined in a legal context. Three experiments were conducted comparing the performance of novices (introductory tax students) and of experts (experienced tax practitioners from multinational public accounting firms) on tasks involving the application of tax laws. In Experiment 1 subjects completed a target problem after reading a decided case that was either analogous or not analogous to a target problem. A limited amount of transfer was observed, with no differential rate of transfer across experience levels. In Experiments 2 and 3 attempts were made to facilitate transfer of knowledge by inducing transfer-appropriate processing of the source analog and by providing multiple source analogs. The results of both experiments indicate an interaction between treatment and expertise. Unexpectedly, the facilitating treatments reduced the transfer of knowledge for experts while increasing the transfer for novices. Subsequent analysis of the responses of the expert subjects indicates that for the more experienced expert subjects a highly proceduralized rule interfered with the knowledge transfer when that rule was made salient by the facilitating treatments. The less experienced expert subjects behaved in a manner consistent with the hypotheses. This poor performance of the more experienced experts results from the inflexibility in expert problem solving due to the proceduralization of information processing. Frensch and Sternberg (1989) demonstrate that this type of inflexibility is one of the costs of expertise and results from the development of a large and highly complex knowledge base containing numerous well developed strategies.

Golden parachutes and managerial incentives in corporate acquisitions: evidence from the 1980s and 1990s

Abstract We investigate the extent to which managerial incentives, including golden parachute (GP) payments, have influenced target acquisition gains over the past two decades. We find that the use and scope of GP contracts expanded dramatically for a large sample of firms acquired from 1980 through 1995. To investigate the effect of managerial incentives on target acquisition gains, we estimate a regression of abnormal stock returns for acquisitions on variables including managerial incentives, the value of GP payments, and the interaction between GPs and management incentives. The regression results indicate that management incentives are positively associated with target acquisition returns and that GP payments serve to mitigate this influence. We do not, however, detect any direct association between the level of GP payments and target gains.

Capitalization of Shareholder Taxes in Stock Prices: Evidence from the Revenue Reconciliation Act of 1993

We investigate the capitalization of shareholder-level taxes into stock values and provide evidence that capitalization of dividend taxes is influenced both by dividend policy and institutional ownership. We regress weekly abnormal stock returns surrounding the passage of the Revenue Reconciliation Act of 1993 on firm dividend yield, institutional ownership, and control variables. We document a negative stock price reaction conditioned on dividend yield during the two weeks in August, 1993, that Congress passed and President Clinton signed legislation that increased individual income tax rates. In addition, we find that the level of institutional holdings, which proxies for whether the marginal investor in a particular stock is an individual taxpayer, moderates this negative stock price reaction. These findings demonstrate that dividend tax capitalization depends upon both the expected dividend policy of the firm and the tax status of the marginal investor.

'Read My Lips...': Does the Tax Rhetoric of Presidential Candidates Affect Security Prices?

We investigate whether security prices reflect the tax rhetoric of opposing candidates during the 1992 U.S. Presidential campaign. We use daily data from the Iowa Political Stock Market to measure changes in the likelihood that the candidate advocating an increase in individual income tax rates would be elected. To isolate the effect of tax rhetoric, we examine the relations between changes in election likelihood and (a) changes in the implicit tax rate on tax-exempt bonds and (b) daily abnormal returns to dividend-yielding stocks. We find that the implicit tax rate on tax-exempt bonds increases as the election probability of the candidate advocating the tax rate increase rises. Consistent with this finding, we also report that abnormal returns for dividend-yielding stocks are negatively associated with changes in the election probability of the candidate advocating a tax increase. Moreover, this negative association decreases with the level of institutional stockholdings, a proxy for the likelihood that the marginal investor in a particular stock is not an individual. In sum, these findings suggest that security prices reflect the expected changes in future tax policy implicit in the tax rhetoric of presidential candidates as the political fortunes of the candidates change throughout the campaign.

Internal Capital and Investment: Evidence from 2012 Pension Relief

We exploit pension funding relief enacted in 2012 to estimate the effects of a positive shock to internal liquidity on market prices and investment. Measuring unexpected increases in internal liquidity using a priori expected pension contributions disclosed under FAS132R, we report positive market returns around the date of Congressional approval for financially constrained firms and find that weak institutional monitoring attenuates these returns. We estimate the likelihood firms will benefit from reductions in mandatory contributions and find that financially constrained firms increase R&D expenditures in the months following the legislation and increase capital expenditures in the year following the enactment date. Overall, we provide evidence that pension disclosures provided useful information to investors in assessing the benefits of pension relief and our results shed light on the importance of capital adjustment costs for capital expenditures vis-a-vis R&D.

Does Inside Debt Moderate Corporate Tax Avoidance

Theory suggests that inside debt held by executives in the form of deferred compensation and unfunded pensions serves to align management incentives with creditors, thereby incentivizing them to act more conservatively. Evidence in the literature suggests that creditors favor less aggressive tax avoidance strategies. Accordingly, we investigate whether the level of inside debt is associated with less corporate tax avoidance. Consistent with theoretical predictions and the high level of financial sophistication of the chief financial officer (CFO), we find that the level of inside debt for the CFO, but not chief executive officer (CEO), is associated with less tax avoidance. In addition, we find that the proximity to financial distress magnifies the inverse relation between CFO inside debt and tax avoidance. Our results are robust to numerous supplemental tests, including instrumental variables estimation and matching.

International transfer pricing restrictions: impact on corporate financial policy

Transfer pricing is a pervasive issue that presents significant tax savings potential concerning international enterprises. The authors discuss company incentives to manage transfer prices in an artic/e appearing in the preceding issue of this journal. In response to these incentives, governments have increasingly enacted and enforced domestic restrictions on transfer prices. In this article, contemporary norms restricting transfer pricing are analyzed. The OEGD and US pricing standards are assessed and Brazils recent application of these standards is considered. Transfer pricing methods are described and evidence of their use is presented. We conclude by describing an intercompany transfer pricing policy intended to facilitate internaI financiaI management and minimize externaI tax threats.

lnternational transfer pricing strategies for minimizing global income taxes

A sobrevivencia a longo prazo de estrategias financeiras otimas, em mercados internacionais competitivos, e critica. Estrategias financeiras concernentes a precos de transferencia se tornam cada vez mais importantes a medida que os fiscais de impostos de rendas procuram receitas adicionais atraves de um controle crescente das praticas empresariais. Neste artigo, as estrategias otimas de impostos sao apresentadas depois de serem revisados o conceito de precos de transferencia e as suas bases logicas subjacentes ao crescente interesse dos governos. Num proximo artigo, nos analisaremos os efeitos das restricoes governamentais nas estrategias de precos otimos.

A TEST OF TVERSKY'S (1977) DIAGNOSTICITY HYPOTHESIS IN AN APPLIED ACCOUNTING CONTEXT

Tverskys (1977) diagnosticity hypothesis predicts that the perceived similarity of two objects depends on the broader set of objects which form the context for judging similarity. This study examined this prediction in an applied setting in which 77 experienced tax accountants chose the “most similar” transaction in different information contexts. The results suggest that, although variations in context can influence a tax accountants perceptions of similarity, such change does not affect their choice of the most similar transaction.

Tax reform: Analyzing a comprehensive income tax

Abstract This paper includes an analysis of the general costs and benefits associated with the introduction of a comprehensive income tax. The introduction of a comprehensive income tax may result in such benefits as simplicity, horizontal equity, and neutrality that may, in turn, be offset by the costs in vertical equity, implementation losses, and efficiency losses. The solution to the question of the desirability of the comprehensive income tax may turn upon the nature of these costs and benefits as well as the philosophy of tax reform that is adopted.