[Models that characterize Pareto-efficient sharing of joint venture profits or constrained Pareto-efficient sharing of income in principal-agent contracting problems have ignored tax considerations. We extend the theory by showing that the effect of taxes on optimal contracting (both in the face of and in the absence of moral hazard problems) is related to the effect of changes in risk attitudes towards lotteries over pre-tax income. For example, optimal contracts will reflect the tax-induced demand for insurance of a risk-neutral individual who faces a progressive income tax schedule; that is, the risk-neutral individual will not bear all the risk, and in the face of moral hazard on the act selection of a risk-neutral agent, demand for monitoring will be created where none existed in the absence of the progressive tax. We also show that Pareto-optimal risk-sharing contracts do not generally result in expected tax minimization, even when taxes are modeled as a deadweight loss to the system.]

Models that characterize Pareto-efficient sharing of joint venture profits or constrained Pareto-efficient sharing of income in principal-agent contracting problems have ignored tax considerations. We extend the theory by showing that the effect of taxes on optimal contracting (both in the face of and in the absence of moral hazard problems) is related to the effect of changes in risk attitudes towards lotteries over pre-tax income. For example, optimal contracts will reflect the tax-induced demand for insurance of a risk-neutral individual who faces a progressive income tax schedule; that is, the risk-neutral individual will not bear all the risk, and in the face of moral hazard on the act selection of a risk-neutral agent, demand for monitoring will be created where none existed in the absence of the progressive tax. We also show that Pareto-optimal risk-sharing contracts do not generally result in expected tax minimization, even when taxes are modeled as a deadweight loss to the system.

This study examines firms' behavior with respect to the systematic intraday timing of earnings and dividend announcements. In particular, it tests the hypothesis that good news is more likely to be released when the security markets are open while bad news appears more frequently after the close of trading. Both endogenous (stock price change) and exogenous (comparison to the preceding period's earnings or dividends) classifications are used to distinguish good news from bad, and both forms support the "good news during, bad news after" hypothesis. An information content analysis using daily stock price data is then performed to illustrate how differences in disclosure timing may affect inferences about the magnitude of stock price response, announcement anticipation or news leakage, and the speed of price adjustment.

Reviews the book "Inflation Accounting, Capital Market Efficiency and Security Prices," by S. Basu.

This paper presents an agency model in which one of several monitoring systems can be chosen, if the agent possesses private information about the firm's production technology, the principal may rationally prefer to delegate the choice of the monitor to the agent even though the agent's compensation will depend on the monitoring information. In general, this expansion of the contracting space allows the principal to orchestrate more efficiently the agent's effort and monitoring system choices. The model suggests that the existence of alternative accounting methods and the delegation of their selection to management may represent rational equilibrium behavior.

General Electric uses the equity method of financial accounting for its subsidiary, General Electric Credit Corporation, but consolidates it on the tax return. This note disentangles the amounts and sources of cash payments and refunds for income taxes of the two companies, with special emphasis on the effect of tax-transfer leases. It shows how to estimate the elements of the costs and benefits of tax-transfer leasing. Through tax-transfer leases, General Electric paid its lessees about $350 million in 1981 for benefits estimated to be worth on the order of $500 million, net. These transactions contributed to GE's being able to arrange its tax affairs to receive a refund of $104 million from the U. S. Treasury, while paying over $300 million in taxes to foreign governments and $54 million to state and local governments.