Kevin Holland

Regression vs. non-regression models of normal returns: implications for event studies

Event studies depend critically on correct specification of the counterfactual, normal returns to corporate assets. Model selection tests for a sample of FT-SE 100 UK companies reject two widely used non-regression models against the principal regression-based alternative, the market model.

Robust vs. OLS estimation of the market model: implications for event studies

OLS estimates of the market model reveal pervasive skewness as well as kurtosis, so that robust estimation will not automatically yield efficiency gains. Moreover, under both OLS and robust estimation, normality is restored when abnormal returns are averaged over portfolios of a size used in event studies.

Recruitment by accounting departments in the higher education sector: An analysis of recent appointees

Abstract This study examines the characteristics of recent appointees and the factors influencing their decisions, firstly to leave their former employment or position and secondly to join a particular institution. The findings indicate that appointees entered higher education to seek a higher level of job satisfaction and that the choice of institution was heavily influenced by its location and the timing of the post becoming available. Multivariate analysis was used to allocate appointees to their respective categories e.g. university, polytechnic, professionally qualified or non-professionally qualified on the basis of the factors referred to above. The results indicate that each category of appointees has different needs or motivations in entering higher education and that appointees perceive a difference between polytechnics and universities in the ability to satisfy those needs.

Dividend taxation and the pricing of UK Equities

Purpose - – The purpose of this paper is to investigate the extent to which UK equity prices reflect shareholder level taxation on dividends (dividend tax capitalisation). Despite an extensive theoretical and empirical literature controversy exists. Design/methodology/approach - – Using a sample of UK firm year ends from 1991 to 2007 archival accounting and share price data are used to test for the presence or otherwise of dividend tax capitalisation. Findings - – The paper finds evidence of equity values reflecting shareholder level dividend taxation. In particular, a significant reduction in the valuation of retained earnings, a measure of dividend paying potential, is observed around the July 1997 abolition of the repayment of dividend tax credits to tax exempt shareholders. This suggests a link between shareholder level taxation of dividends and firms’ cost of capital. Research limitations/implications - – The analysis focuses on share prices and is therefore subject to an underlying assumption of shareholders’ understanding tax and other potential relevant information. Practical implications - – The taxation of dividends is an important issue because of the potential for it to influence firms’ cost of capital and therefore investment decisions. Further, non-tax costs may be incurred to the extent that attempts are made to mitigate any “adverse” tax effects. Social implications - – The results indicate that taxation of dividends and share prices are associated and therefore also indirectly firms’ cost of capital. This linkage has implications for investment appraisal and the allocation of capital between competing demands. Originality/value - – In using an asset valuation approach the limitations of alternate methods of examining shareholder level taxation of dividends are avoided, e.g. analysis of dividend drop of ratios.

Taxation influences upon the market in venture capital trust stocks: theory and practice

Individuals investing in a venture capital trust (VCT) IPO listed on the London Stock Exchange receive a number of conditional tax incentives; the time-related nature of the associated conditions can create a ‘lock-in effect’. By deriving and testing a model of the value of these incentives we examine how they influence investors’ pricing and trading decisions. This paper contributes to the ongoing tax capitalisation debate in three ways: first, by calculating the magnitude of the lock-in effect without reference to underlying shareholder records; second, by adopting a time series approach in view of the time-varying magnitude of the potential lock-in effect, and thereby avoiding control issues involved in cross-sectional analysis of the effects of taxation on pricing; and third, by focusing on changes in the bid–ask spread rather than, for example, mid price, so reducing the impact of changes in the market value of the instruments under consideration on the analysis. Our results have direct policy implications in suggesting a conflict between the existence of time-related conditional tax incentives and the requirement for VCTs to be listed on the London Stock Exchange explicitly in order to promote liquidity in a historically illiquid sector of the market.

Sharing corporate tax knowledge with external advisers

Tax knowledge is critical for companies to comply with tax laws and engage in tax planning and avoidance. Firms rely on external advisers in handling tax issues, however, sharing corporate tax knowledge with external advisers entails both opportunities and risks. We identify four relational factors that are associated with the decision of corporate taxpayers to share knowledge with external tax advisers. Survey data from 221 corporate taxpayers reveals a novel distinction between operational and strategic knowledge sharing. The operational dimension has a functional nature, whereas the strategic dimension has a more intentional character. Accessibility to, and a positive experience with, external advisers enables operational knowledge sharing. When firms perceive specific tax benefits in relation to sharing knowledge, they are more inclined to engage in operational knowledge sharing with external advisers but less prone to strategic knowledge sharing. Instead, strategic knowledge sharing is enhanced when firms have access to, and value the knowledge of their advisers, although this latter factor plays no significant role in explaining operational knowledge sharing. A positive experience with advisers also associates with strategic knowledge sharing. We link our results to other research and discuss implications for regulators considering, or requiring, firm disclosures of corporate tax strategy.