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Opportunities to Divert, Firm Value, and Taxation: Theory and Evidence from European Firms

  • Robert Krämer
  • Vilen Lipatov

We study the relationship between opportunities for managerial diversion, corporate tax system parameters, and the return on shareholder funds. Theoretically, in a simple game between corporate insiders and outsiders, higher costs of diversion increase the return. European firm-level data lend support to these results. Further, in civil-law countries an increase in the corporate tax rate has a positive effect on shareholder value, whereas in common-law countries it has a negative effect.

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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 68 (2012)
Issue (Month): 1 (March)
Pages: 17-47

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201203)68:1_17:otdfva_2.0.tx_2-9
DOI: 10.1628/001522108X632005
Contact details of provider: Web page: https://www.mohr.de/fa

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  1. Peter Egger & Doina Maria Radulescu, 2011. "Labor Taxation and Foreign Direct Investment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(3), pages 603-636, 09.
  2. Bengt Holmstrom & Paul R. Milgrom, 1985. "Aggregation and Linearity in the Provision of Intertemporal Incentives," Cowles Foundation Discussion Papers 742, Cowles Foundation for Research in Economics, Yale University.
  3. Brian J. Hall & Jeffrey B. Liebman, 2000. "The Taxation of Executive Compensation," NBER Chapters, in: Tax Policy and the Economy, Volume 14, pages 1-44 National Bureau of Economic Research, Inc.
  4. Baumol, William J, 1990. "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 893-921, October.
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