The Impact of the Grain Glitch Fix on a Specified Cooperative’s Organizational Form Choice of Exempt or Nonexempt Classification

How do entrepreneurs select their chosen organizational form? In this paper we adopt a novel theoretical perspective to examine how social entrepreneurs choose between alternative forms. We employ the concept of aspirational fantasy to explain organizational form choice and illustrate the value of this approach with qualitative, empirical data from social entrepreneurs who have adopted the community interest company (CIC), a relatively new organizational form that was established specifically to enable social enterprises to better manage the tensions associated with pursuing multiple, and at times conflicting, goals. Exploring in-depth the processes of founder and leader selection of this new corporate form, we draw on ideas from psychoanalytic theory, specifically desire and fantasy, to develop a 'Time-Fold' model of organizational form choice. The concept of aspirational fantasy upon which the model is based incorporates affective attachments to an ethical past, hopes for a utopian future, and present anxiety over perceived tensions within the CIC structure. It therefore draws on ideas of temporality in which past, present and future coalesce in the fantasmatic construction of an idealized organizational form. In proposing this approach, we contribute to debates on micro-processes of socially entrepreneurial behaviour, affect and entrepreneurship, and organizational form choice.

The Tax Reform Act of 1986 reduced individual income tax rates below that of corporations. The fear that this would lead to a systematic disincorporation has not apparently materialized since the major stock exchanges report that only about 100 partnerships were traded during the next five years. Scholes and Wolfson (1992) suggest that this result is predictable because of the additional nontax costs of operating as a partnership, which include increased transactions costs, more restricted access to capital markets, and less control over management. Guenther (1992) and Terando and Omer (1992) provide evidence that firms must have considered both tax and nontax costs when choosing organizational form. This study examines whether the factors taken into consideration in organizational form choice also affected the market value of a sample of firms in the oil and gas industry during the period 1985-1988. We chose for our tests a valuation model used by Harris and Ohlson (1987) and others since many of the publicly traded (master limited) partnerships (MLPs) were created in the oil industry. The studies by Guenther (1992) and Terando and Omer (1992) show that MLPs generally had only one line of business, less debt, and higher dividend yields than their corporate counterparts. These differences are predictable in view of the tax consequences of operating in the partnership form. Guenther also finds MLPs to be less profitable, which is consistent with higher nontax costs of the partnership form. We show that MLPs invested significantly less in exploration for new deposits. The combination of the lower exploration expenditures, higher dividend yields, and poor financial performance suggests that MLPs may have been set up as limited-life entities to distribute assets to their unit holders in a tax-efficient manner. We extend the Harris and Ohlson (1987) valuation model by adding dividends and exploration levels. Exploration levels are found significant for both MLPs and corporations, but dividends are relevant only in the MLP model. We also find that dividend levels are significantly explained by asset values only for the MLPs. These valuation differences are consistent with tax-motivated organizational form choice and the perceived passive nature of the MLPs.

Tax Function Convexity, Risk-Taking, and Organizational Form Choice

Special tax regimes and the choice of organizational form: Evidence from the European Tonnage Taxes

The impact of the corporate income tax: evidence from state organizational form data

In this paper, I review the empirical literature in the intersection of banks and corporate income taxation that emerged over the last two decades. To structure the included studies, I use a stakeholder approach and outline how corporate income taxation plays into the relation of banks and their four main stakeholders: bank regulators, customers, investors and tax authorities. I identify six dimension where taxes are important for banks: debt financing, tax incidence, organizational form choices, profit shifting, financial reporting transparency and customers’ tax avoidance. In addition, the studies in this review show that corporate income taxes lead to distortions between debt and equity financing, between on- and off-balance sheet financing, of prices and of investment allocations. My contribution to the literature is threefold: First, I contribute by providing, to the best of my knowledge, a first comprehensive review on this topic. Second, I deduce policy implications from the studies under review. Third, I point to areas of future research in the intersection of bank regulation and tax legislation.

ABSTRACTSubchapter C of the U.S. Internal Revenue Code levies an entity‐level tax on corporate profits, whereas Subchapter S allows corporations meeting specific criteria to elect out of this tax. Despite these differences, C and S corporations regularly compete for customers and capital. We examine whether and the extent to which competition from S corporations influences the future organizational form choice of rival C corporations and explore outcomes of this choice. Using data for 4,462 private U.S. commercial banks grouped by Metropolitan Statistical Area during 1997–2010, we find that greater competition from S corporation banks increases the likelihood that rival C corporation banks convert to Subchapter S status. We estimate that the aggregate first‐year tax savings from S conversion exceed $372 million. Consistent with these savings being used to maintain competitive parity with rivals, we find that converting banks increase their interest rates on customer deposits and advertising intensity. Our findings provide insight into whether competition from tax‐advantaged firms influences the organizational form choice of rival tax‐disadvantaged firms.

This study analyzes how the level of perceived tax risk affects a company's decision on whether to use corporate tax savings for investment or retain them as cash. While many previous studies have examined the determinants of tax avoidance, little attention has been given to how companies utilize the cash obtained through tax avoidance. Therefore, this study focuses on the utilization of tax savings by companies. Previous studies paid attention to financial constraints as a factor influencing the use of tax savings, but did not consider the risks of tax－saving cash. For the first hypothesis, we tested whether the risk of tax savings affects the use of tax savings. The results show that tax savings are not used for investment activities when tax risk is high, but investment using tax savings is increased when tax risk is low. Secondly, we examined whether the tendency to use less tax savings for investment when tax risk is high is dependent on financial constraints. As a result, it was found that this phenomenon does not depend on financial constraints. This means that tax risk is a more important determinant than financial constraints in the use of tax savings. On the other hand, the impact of tax risk on the utilization of tax savings may vary depending on whether the tax savings for the current year are subject to future payments or are permanently exempt. To confirm this, we classified tax savings into temporary and permanent differences between accounting standards and corporate tax law, and verified whether the use of temporary or permanent tax savings shows a discriminatory response to tax risk. As a result, the temporary difference in tax savings was not used for investment, but the permanent difference was used for investment, and more money was used for investment when tax risk was low. Fourthly, the analysis examined whether investment preferences vary based on tax risk, revealing that tax savings are seldom utilized for investment when tax risk is high, but there is a possibility to invest in liquid financial assets. This study contributes to existing research by examining tax risk as a determinant of corporate tax savings utilization. In addition, the firm fixed effect, which was not controlled in previous Korean studies, was additionally controlled. In addition, previous studies were developed in that tax savings were divided into temporary and permanent differences, and that investment types changed according to tax risks. According to the research result, the volatility of the corporate tax burden affects the use of tax savings. Even if the government implements business－friendly policies such as corporate tax reduction, if the corporate tax burden volatility increases due to frequent policy changes, financial resources may not be used for investment.

Competition and Organizational Form Choice - Evidence from Fast-Food Chains

This paper provides an organizational economics foundation to guide managers in matching the comparatively more efficient organizational mode with transactional characteristics such as: (1) the degree of (human capital) asset specificity involved in the transaction, (2) the degree of uncertainty surrounding the transaction, and (3) the number of trading partners (suppliers and buyers) in the vertical supply chain. The key role of technology, and more specifically the e-business infrastructure and its effects on organizational mode choice, is highlighted. The main results from this analysis suggest that changes in information technology are changing the nature of transaction costs leading to more efficient management through an electronic integration solution thus favoring contracting and outsourcing than would have been technologically possible when Williamson's Markets and Hierarchies (Markets and Hierarchies: Analysis and Antitrust Implications. Free Press: New York, 1975) was published. It is emphasized that the transaction cost economics principles are durable but that the breathless advances in information technology, especially in the past decade, have comparatively favored lower transaction costs of markets over hierarchies. Copyright © 2006 John Wiley & Sons, Ltd.

How do changes to taxation policy affect the organizational choices of firms? Using historical firm data constructed from Japanese corporate genealogies, we examine the short-run impact of introducing a personal income tax (PIT) in 1887 on tax-motivated incorporation. Between 1880 and 1892, we find that the introduction of PIT increased the share of incorporated firms by more than 3 percentage points, indicating firms chose their organizational structure to avoid new taxation. Furthermore, our results suggest that a corporate income tax may have acted as a backstop to maintain revenue collected through PIT.

Organizational forms within the insurance industry include stock companies, mutuals, reciprocals, and Lloyds. We focus on the association between the choice of organizational form and the firm’s contracting costs, arguing that different organizational forms reduce contracting costs in specific dimensions. This suggests that differing costs of controlling particular incentive conflicts among the parties of the insurance firm lead to the efficiency of alternative organizational forms across lines of insurance. We analyze the incentives of individuals performing the three major functions within the insurance firm—the manager function, the owner function, and the customer function. We review evidence from the insurance industry that directly examines this product-specialization hypothesis. We then examine evidence on corporate policy choices by the alternative organizational forms: executive compensation policy, board composition, distribution system choice, reinsurance purchases, and the use of participating policies. Finally, we review evidence of the relative efficiency of the alternative organizational forms.

Cooperative organizational forms such as franchising and joint venturing have long been popularamong hospitality chains. However, not all chains use cooperative organizational forms and those that do varygreatlyin theirproclivityto use them. One possible explanation for this variation is that when a chain confronts critical resourcescarcities, its managers will use cooperative organization in order to build upon the resources of their partners. However a second approach, agency theory, suggests that chain managers use cooperative organization to minimize the costs of monitor ing outlet managers. Using data on 94 restaurant chains, hypotheses are tested that investigate the independent and joint efficacy of these explanations. Results show that capital and brand name are important resources affecting the choice of organizational form whereas geographic dispersion, task programmability, and asset specificity are key agency variables. Overall, perhaps the key finding is that the ability of agency theory to explain organizational form is diminished among resource scarce chains. The results, therefore, suggest that both perspectives are needed to fully explain the choice of organizational form.

To franchise or not to franchise: An analysis of decision rights and organizational form shares

Choice of Organizational Form as a Trade-Off Between Fit and Market Timing