Vijay M. Jog

Tax reforms, debt shifting and tax revenues: Multinational corporations in Canada

An analysis of Canadiancorporate income tax revenues during the 1984–94 periodshows a relative shifting of tax revenue shares between Canadianand foreign-controlled corporations, and a substantial changein the debt levels of foreign-controlled corporations, as wellas Canadian-based multinationals. We claim that these changesmay have been associated with the tax reforms undertaken by theUnited States and Canada in the mid-1980s resulting in the relativechange in the tax rates between the two countries. We also hypothesizethat if this difference persists and in Canadian-controlled corporationscontinue to aggressively expand abroad, the Canadian corporatetax base could experience further pressure.

Impact on Target Firm Risk-Return Characteristics of Domestic and Cross-Border Mergers and Acquisitions in Emerging Markets

Using a large sample of partial cross-border mergers and acquisitions from emerging countries, we show that these acquisitions significantly reduce the risk of the target firms and that the risk reduction is directly related to the changes in the international shareholder base and the strength of the investor right protection of the acquirer. We also find that these acquisitions are value creating because we see improvements in both the short-term and long-term risk-adjusted stock performance in target firms during the postacquisition period.

Finance constraints and asset pricing: Evidence on mean reversion

Abstract This paper investigates the potential effect of finance constraints on asset pricing, focusing on cross-sectional patterns of mean reversion. Theoretical work by Brock and LeBaron (1990) shows that in a production-economy version of the Lucas asset pricing model, finance constraints can accentuate mean reversion. Using panel data and distinctive Canadian institutional features which allow us to identify finance-constrained firms, we find that constrained firms show more evidence of mean reversion. Using a bootstrapping approach to inference, we show that the differences between constrained and unconstrained firms are statistically significant.

THE VENTURE CAPITALIST/ENTREPRENEUR INTERFACE: EXPECTATIONS, CONFLICTS, AND CONTRACTS

ABSTRACT This research addresses the salient characteristics of the post-investment activities of the venture-capital investment process: the contracting and monitoring steps. It uses questionnaire-based empirical findings from a survey of venture-capital investors to characterize the expectations of the venture capitalist, the sources of conflicts and the provisions of the contractual relationship. Conflicts are identified across a number of dimensions. Growth expectations which differ between venture capitalists and entrepreneurs form a significant basis for conflicts. A high level of standardization of contractual provisions was noted among investors.

Retirement Income and the Lifetime Capital Gains Exemption: The Case of Qualified Farm Property and Small Business Corporation Shares

This paper examines the farm and small business LCGE. Our results of the farm LCGE provide only a partial support to the notion that it meets the special retirement needs of farmers. A large majority of the beneficiaries have income sources other than farming; however, many of them are near retirement age, earn relatively lower incomes and have relatively lower contribution rates. The small business LCGE results are quite different. A majority of the beneficiaries are younger and richer. Accordingly, the benefits of this measure seems to have gone to those who do not seem to require additional assistance for their retirement needs.

Diversity on Boards

Examinations of public company board composition have focused on the absence of women but rarely on the absence of visible minorities. Given an increasingly diverse domestic population and increased participation of second-generation immigrants in the professional cadre, we think that board diversity, and in particular visible minority directors (VMDs), warrants academic attention. Accordingly, in this study, we examine both women and VMDs on boards of firms listed on the Toronto Stock Exchange as well as in graduating classes of director education programs in Canada. Our preliminary analysis indicates that visible minorities represent less than 5 percent of the population in both cohorts while the percentage of women is much higher. By contrast, white women comprise 25 percent of DEP graduates and 14 percent of public company boards. We note the much lower representation of visible minorities relative to both white women and white men on corporate boards. We also examine the types of firms that are more likely to place visible minorities and women on their boards, noting that firms in certain industries such as mining and oil and gas have been historically less likely to have diverse boards.

Information Asymmetry and Acquisition Premiums in Domestic and Cross Border M&As in Emerging Markets

In this paper, we test and find a strong positive relationship between information asymmetry and acquisition premium in the acquisitions of emerging market firms. The results are based on a large sample of domestic and cross-border acquisitions in 20 emerging countries between 1990 and 2007. We also confirm that under higher level of information asymmetry, acquiring firms tend to use lower cash payments (i.e., higher stock payments) and they are more likely to acquire majority control (>50%) in the target firms. After considering the endogenous relationship among acquisition premium, payment method, and majority control based on a simultaneous equation model, the positive relationship between asymmetric information and acquisition premium continues to exist. We also conduct various robustness tests with respect to the choice of information asymmetry proxy, estimation period and the correction of sample selection bias and find that the results do not change. We argue that acquiring firms pay high premium in order to gain majority control in the target firms to mitigate the information asymmetry problem and to access more valuable private information resources that are not accessible to public investors.

Non-public contracts, cash flows and firm value: the case of Lockheed

Purpose - – This study aims to examine a large, non-disclosed production contract awarded to Lockheed Corp. in the context of a trade-off between a contractually required non-disclosure clause and the need (as a publicly traded firm) to disclose material information to its shareholders. This production contract generated significant cash flows to the firm as evidenced by growth in its earnings. However, the existence of the production contract and its contribution to Lockheed’s earnings, was not disclosed by the firm to shareholders and potential investors while the production contract was being executed. Design/methodology/approach - – The authors examine the market reaction to several key contract events which were not disclosed at the time they occurred, in compliance with the contractually required non-disclosure clause. Findings - – A statistically significant stock price reaction around the time of the award of this non-public contract, indicative of trading by some capital market participants using non-public information was documented. Originality/value - – Because similar large non-public contracts funded by the government are common in the industrial economy, we conclude by discussing implications for organizational structure, firm’s cost of capital, equity-based compensation and market efficiency.

Returns and Fund Flows in Canadian Mutual Funds

With nearly

GOVERNMENT POLICIES, PENSION FUNDS, AND THE ENVIRONMENT FOR SMB FINANCING IN CANADA

440bn in assets and 51 million account holders by the end of the year 2003 in Canada, mutual funds now occupy a prominent position among financial intermediaries. The 1990s witnessed an explosive growth in mutual funds in Canada; the number of accounts grew nearly tenfold during this period. A similar growth in mutual fund assets has been reported in many countries around the world.