Publications

Several studies indicate that stock option plans are becoming more and more a substantial part of compensation schemes in U.S. companies. This paper argues that for an employer the attractiveness of stock options arises from the U.S. Generally Accepted Accounting Principles (US-GAAP) which require no charge to earnings for specifically designed stock option plans if a company opts for footnote disclosure. This poses a substantial problem for security analysis since a firm's earnings may be considerably upward biased. Based on a case study of 20 companies out of the S&P 500 which rely heavily on employee stock options we arrive at the conclusion that the amount of hidden compensation cost can be significant. For some of the companies the misrepresentation of stated earnings exceeds usual immateriality limits by far. Therefore, we propose that the fair value method of Statement No. 123 Financial Accounting Standards Board should be made compulsory in order to restore the true and fair view which 'income as stated' should provide.

It is a widely acknowledged result of the literature on capital tax competition that underprovision of public goods can only be avoided if tax coordination between governments is intensive and residence-based capital taxation can be enforced. In this paper we use a model where commodity and factor taxes are available and we show that governments competing for tax bases will choose a globally efficient tax structure. In contrast to previous conclusions, we also show that the availability of a destination-based commodity tax or a labor tax is necessary to mitigate the problem of inefficient Nash equilibria and thus reduces the necessity of supranational tax harmonization or coordination.

Strong lending relationships between banks and small and medium-sized enterprises (SMEs) play a key role in the bank-based financial system of Germany. So far, they have been mainly described by the notion of a housebank and transactional features of long-term bank-customer relationships. In contrast, the present paper also considers interactional variables which try to measure social relationships between loan officer and firm manager. Using bank survey data, the relationship and interaction variables prove to affect loan prices, collateral requirements and credit availability.

We consider the demand for state contingent claims in the presence of a zero-mean, nonhedgeable background risk. An agent is defined to be generalized risk averse if he/she reacts to an increase in background risk by choosing a demand function for contingent claims with a smaller slope. We show that the conditions for standard risk aversion: positive, declining absolute risk aversion and prudence are necessary and sufficient for generalized risk aversion. We also derive anecessary and sufficient condition for the agent's derived risk aversion to increase with a simple increase in background risk.

The paper investigates the impact of corporate governance on the performance of 361 German corporations over the time period 1991 to 1996. We find ownership concentration to affect profitability significantly negatively. Representation of owners on the board of executive directors does not make difference. The profitability-ownership concentration relation depends on both stock market exposure and the location of control rights. The negative effect of ownership concentration can be traced back to foreign- or family-owned non-quoted firms as well as quoted firms with different large shareholders. A positive impact of ownership concentration on profitability, supportive of managerial discretion and agency theories shows up for quoted firms which have financial institutions as large shareholders. Our results imply that (1) the presence of large shareholders does not necessarly enhance profitability, and (2) the high degree of ownership concentration seems to be a sub-optimal choice for many of the tightly held German corporations.

Dieses Papier untersucht die Ausgestaltung der deutschen Einkommensteuer und die neuen Regelungen der letzten Steuerreformen (1999, 2000) hinsichtlich ihrer Wirkungen auf das zu Grunde liegende Besteuerungssystem. Es wird gezeigt, daß die umfassende Einkommensermittlung bei Privatpersonen nur mehr eine formal-rechtliche Hülle ist und das Einkommensteuersystem Elemente sowohl einer Schedulensteuer als auch einer konsumorientierten Einkommensteuer enthält. In der Besteuerung der Altersrenten und Pensionen gehen die Regelungen der deutschen Einkommensteuer sogar über die Entlastungswirkungen einer konsumorientierten Einkommensteuer hinaus.

Do financial market analysts use structural economic models when forecasting exchange rates? This is the leading question analysed in this paper. In contrast to other sudies we use expectations instead of realised data. Therefore we analyse the implicite structural models forecasters have in mind when forming ther exchange rate expectations. Using expected short- and long-term interest rates and business expectations as explanatory variables we estimate latent structural models to explain expected exchange rates. A special hypothesis is whether exchange rate expectations are formed according to monetary models. The currencies included in the study are US dollar, British pound, Japanese yen, French franc and Italian lire, each defined against the German mark. A major finding of the analysis is that expected GDP is the most important variable (form the set of our variables) for the determination of exchange rate expectations. For the DM/US dollar expectations a Mundell-Fleming type model is compatible with the data. This means, that increasing interest rates will lead to an appreciation of the corresponding currency. The opposite result have been found for French franc and Italian lire where high expected interest rates indicate a weak currency.

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dc.contributor.author: Hettich, Frank; Schmidt, Carsten

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dc.contributor.author: Reunanen, Esa; Suikkanen, Risto

Models of international tax competition typically assume the existence of a benevolent government. This paper presents a model which integrates the view of government as source of inefficiency with an analysis of distorting taxes on capital investment, savings and labor income in a common theoretical framework. The model yields the conclusion that the effects of international tax coordination on the welfare of residents can be ambiguous because the costs of inefficient public good supply are lowered but wasteful government consumption increased. However, the above finding is derived when the residence-based capital tax is not available. In contrast, government use of taxes clearly is inefficient from the viewpoint of residents in the presence of residence-based capital taxation.

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The paper employs a standard model of dynamic price competition to study how international principles of value-added taxation effect the stability of collusive agreements when producers in an international duopoly agree not to export into each other's home market.