This paper assesses the sensitivity of the risk buffers, or capital requirements, of central counterparties clearing over-the-counter derivatives trades to a range of model inputs. It finds capital requirements to be highly sensitive to whether key model parameters are calibrated on a point-in-time versus stress-period basis, whether the risk tolerance metric adequately captures tail-risk events, and the ability – or lack thereof – to define exposures on the basis of netting sets spanning multiple risk factors. Our results suggest that there are considerable benefits from prudential authorities adopting a more prescriptive approach to central counterparties’ risk buffers, in line with recent enhancement of the capital regime for banks’ trading books.

This paper extends Brock and Durlauf's (2001a, 2001b) binary choice complete network (or group interaction) model with homogeneous rational expectations to a general network model with heterogeneous rational expectations. In our model, individuals will form expectations regarding peers' behaviors taking into account their characteristics. Endogenous, contextual, and correlated effects are all identifiable. Conditions for unique equilibrium are established. For a complete network with heterogeneous rational expectations, multiple equilibria can be characterized by an aggregate scalar index. The empirical results on adolescents' smoking behaviors show significant endogenous and contextual effects, even after controlling for school-grade random effects and school fixed effects.

We investigate tax incidence reflected in the pricing of syndicated loans and argue that loan spread increases in bank income taxes of borrowers’ home states. We compare borrowers in states with differing bank tax rates and demonstrate the presence of tax incidence on borrowers with causality coming from bank taxes. Tax incidence on borrowers increases with local loan market concentration and pre-existing lending relationships. Further, a lack of tax deductibility of loan loss provisions enhances tax incidence. We conclude that bank income taxation, though specifically targeted at banks, is partially passed through to borrowers and increases their cost of debt.

This study examines how institutional investors' corporate site visits affect tax avoidance. Using quantile regressions, we find that corporate site visits decrease tax avoidance for firms at high levels of tax avoidance and increase tax avoidance for firms at low levels. The effect of corporate site visits on tax avoidance is stronger for firms subject to a weaker information environment, which suggests that institutional investors acquire additional firm-specific information via corporate site visits and play a more effective monitoring role. We also find that visitors who visited low-tax firms in prior years share tax-planning knowledge with high-tax firms which they visit in the current year. The effect of tax knowledge transfer is more pronounced when the visitors are from incumbent institutional shareholders. This study identifies corporate site visits as a channel via which institutional investors serve as monitors to managers and as facilitators of tax knowledge transfer.

ABSTRACT This study exploits the staggered adoption of the inevitable disclosure doctrine (IDD) by U.S. state courts as an exogenous shock that generates variations in the proprietary costs of disclosure. We find that firms respond to IDD adoption by reducing the level of disclosure regarding their customers’ identities, supporting the proprietary cost hypothesis. Our results are stronger for firms in industries with a higher degree of entry threats, for firms in more volatile industries, and for firms with a lower degree of external financing dependence. Overall, this study represents one of the first efforts in identifying the causal effect of proprietary costs of disclosure on the supply of disclosure.

We investigate the extent to which capitalization of expected capital gains taxes and the lock-in effect induced by the capital gains tax rate differential simultaneously impact the pricing and underpricing of initial public offerings (IPOs). Using a large sample of IPOs from 1987 to 2010, we estimate regressions of offer prices and first-day underpricing on tax rates. Supporting tax capitalization, IPO offer prices decrease in long-term capital gains taxes. Supporting lock-in, IPO underpricing increases in the long-term and short-term tax rate differential. These effects are consistent with capital gains taxes simultaneously reducing IPO proceeds and exacerbating IPO underpricing.

Using a large panel of more than 140,000 state-owned enterprises (SOEs), this study examines SOEs’ investment behavior surrounding 82 national elections in 25 European countries between 2001 and 2015. We find that SOEs increase their corporate investment by about 29% of the sample average during national election years. This effect is more pronounced in fixed timing and closely contested elections. The effect is also stronger in countries with low institutional quality, more centralized political systems, and state-controlled banking systems. In contrast, we find the matched non-SOEs significantly decrease their corporate investment during national election years. (JEL G18, G30, G32, E22) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.