Abstract Extensive empirical research concerning the impact of taxes on corporate decisions has had trouble identifying seemingly obvious effects. Perhaps the problem is that the seemingly obvious tax predictions are not quite right. We provide an equilibrium model with both corporate and personal taxes. In the steady-state equilibrium, the corporate tax rate affects the level of production despite interest deductibility at the firm level, but not household-level taxes on interest earnings or dividends. We prove several other tax irrelevance results and document a Laffer curve in the corporate tax rate. (JEL G31, G32, G35)

We develop an optimal tax-timing model that takes into account asymmetric long-term and short-term tax rates for positive capital gains and limited tax deductibility of capital losses. In contrast to the existing literature, this model can help explain why many investors not only defer short-term capital losses to long term but also defer large long-term capital gains and losses. Because the benefit of tax deductibility of capital losses increases with the short-term tax rates, effective tax rates can decrease as short-term capital gains tax rates increase.

Following the dividend flexibility hypothesis used by DeAngelo and DeAngelo (2006), Blau and Fuller (2008), and others, we theoretically extend the proposition of DeAngelo and DeAngelo (2006) optimal payout policy in terms of the flexibility dividend hypothesis. In addition, we also introduce growth rate, systematic risk, and total risk variables into the theoretical model. To test the theoretical results derived in this paper, we use the data collected in the US from 1969 to 2009 to investigate the impact of the growth rate, systematic risk, and total risk on the optimal payout ratio in terms of the fixed-effect model. We find that based on flexibility considerations, a company will reduce its payout when the growth rate increases. In addition, we find that a nonlinear relationship exists between the payout ratio and the risk. In other words, the relationship between the payout ratio and the risk is negative (or positive) when the growth rate is higher (or lower) than the rate of return on total assets. Our theoretical model and empirical results can therefore be used to identify whether flexibility or the free cash flow hypothesis should be used to determine the dividend policy.

This paper examines the profits of revenue, earnings, and price momentum strategies in an attempt to understand investor reactions when facing multiple information of firm performance in various scenarios. We first offer evidence that there is no dominating momentum strategy among the revenue, earnings, and price momentums, suggesting that revenue surprises, earnings surprises, and prior returns each carry some exclusive unpriced information content. We next show that the profits of momentum driven by firm fundamental performance information (revenue or earnings) depend upon the accompanying firm market performance information (price), and vice versa. The robust monotonicity in multivariate momentum returns is consistent with the argument that the market does not only underestimate the individual information but also the joint implications of multiple information on firm performance, particularly when they point in the same direction. A three-way combined momentum strategy may offer monthly return as high as 1.44%. The information conveyed by revenue surprises and earnings surprises combined account for about 19% of price momentum effects, which finding adds to the large literature on tracing the sources of price momentum.

This study investigates the investment decision and dividend policy jointly from a non-steady state to a steady state. We extend Higgins, 1977, Higgins, 1981, Higgins, 2008 sustainable growth rate model and develop a dynamic model which jointly optimizes the growth rate and payout ratio. We optimize the firm value to obtain the optimal growth rate in terms of a logistic equation and find that the steady state growth rate can be used as the benchmark for the mean-reverting process of the optimal growth rate. We also investigate the specification error of the mean and variance of dividend per share when introducing the stochastic growth rate. Empirical results support the mean-reverting process of the growth rate and the importance of covariance between the profitability and the growth rate in determining dividend payouts. The intertemporal behavior of the covariance may shed some light on the fact of disappearing dividends over decades.

This paper investigates how the regulation of bank wealth management products (WMPs) affects corporate innovation. We build a concise model linking firms’ assets allocation decisions to regulatory variables affecting banks. The model suggests that current WMP regulation can enhance formal lending and stimulate innovation among state-owned enterprises (SOEs), while having no impact on innovation in private enterprises (PEs). Empirically, we identify firms’ exposure to bank regulation by examining the number of WMPs issued by banks in 2017 and the distance between banks and firms. Our results indicate that innovation output significantly increased for highly exposed SOEs, while there was no significant change for PEs. Using city-level data, we further observe that regulation fosters innovation in regions with higher exposure. Our findings suggest that regulation exerts heterogeneous effects on the real economy by banks’ credit allocation and firms’ investment strategies.

We develop an optimal tax-timing model that takes into account asymmetric long-term and short-term tax rates for positive capital gains and limited tax deductibility of capital losses. In contrast to the existing literature, this model can help explain why many investors not only defer short-term capital losses to long term but also defer large long-term capital gains and losses. Because the benefit of tax deductibility of capital losses increases with the short-term tax rates, effective tax rates can decrease as short-term capital gains tax rates increase.

This study uses the Google search volume index as a direct measure of investor attention to explore the connection between attention-grabbing information and fund flows, future performance, and the survivorship of newly issued funds. We find that investors often engage in attention-driven purchases of new funds that have captured their attention online. However, fund investors who conduct internet searches and make attention-driven purchases are less sophisticated and fail to allocate their capital for earning abnormal returns. We also find that attention-induced inflows can help sustain new funds in competitive fund markets via potential mitigation of mergers and liquidations. Our robustness checks show similar results for old funds, but attention-driven fund flows do not enhance the survival of old funds.