Pre-tax Profit Research Articles

AkzoNobel finds buyer for chemical business

AkzoNobel has agreed to sell its chemical business to the Carlyle Group, a private equity firm, and its partner, the Singapore-based investment firm GIC, for $12.5 billion. The business, which makes products including chlorine, caustic soda, polymer additives, surfactants, and water treatment chemicals, recorded sales in 2017 of $6.2 billion and pretax profits of $850 million. The parties expect to close the deal by year-end. The divestment will leave AkzoNobel as a coatings producer with sales of almost $12 billion and pretax profits of $1.1 billion. After paying separation and other costs, AkzoNobel expects to receive net proceeds of about $9.3 billion, most of which it will return to shareholders. Analysts at the equity research firm Jefferies expect AkzoNobel to keep about $1.2 billion to make acquisitions or other investments. The new owners of the chemical business say they are looking to expand it. “We are committed to growing the

The effect of acquisition moves on income, pre-tax profits and future strategy of logistics firms

The effect of acquisition moves on income, pre-tax profits and future strategy of logistics firms

Multinationals' Profit Response to Tax Differentials: Effect Size and Shifting Channels

This paper provides a quantitative review of the empirical literature on profit-shifting behavior of multinational firms. We synthesize the evidence from 25 studies and find a substantial response of profit measures to international tax rate differentials. Accounting for misspecification biases by means of meta-regressions, we predict a tax semi-elasticity of subsidiary pre-tax profits of about 0.8. Moreover, we disentangle the tax response by means of financial planning from the transfer pricing and licensing channel. Our results suggest that transfer pricing and licensing are the dominant profit-shifting channel.

BASF scoops up Solvay’s nylon

In a transaction involving two of Europe’s biggest chemical makers, BASF has agreed to acquire Solvay’s global nylon business for $1.9 billion. The business is the world’s third-largest maker of nylon engineering plastics, with annual sales of $1.6 billion and pretax profits of about $240 million. It predominantly makes nylon 6,6, a polymer with applications in automotive, electronics, and other markets. BASF says the purchase will give it greater access to growth markets in South America and Asia. Additionally, the deal will strengthen BASF’s nylon 6,6 supply chain by bringing the key raw material adiponitrile, which BASF now purchases. The deal is set to be completed late next year. Solvay acquired the nylon business in 2011 as part of its $4.8 billion purchase of the French chemicals firm Rhodia. It employs approximately 2,400 people, half of whom are located in France. It has 12 production sites, four R&D hubs, and

Innovation quality of firms with the research and development tax credit

This paper examines innovation quality of U.S. research tax credit users (i.e., firms with currently earned research tax credits). Prior literature reports that the research tax credit is effective in increasing research and development (R&D) expenditures and reducing managers’ myopic behavior. However, little is known about the real (or economic) effect of R&D tax credits, as most of these findings have been based on estimated R&D tax credits rather than actual R&D tax credits. Additionally, some researchers and the government still have concerns about the real effect of R&D tax credits by criticizing the ambiguity and complexity of the tax codes (IRC Section 41). Therefore, I use actual R&D tax credits identified in firms’ 10-K and state R&D tax credits as identification tests to reduce endogeneity issues. My results indicate that research generating R&D tax credits contributes to better innovation quality and higher return volatility but lower pre-tax profitability. Overall, these findings imply that enacting the R&D tax credit provisions would trigger better innovation.

An Explorative Study on Mandatory CSR Spending with Reference to Section 135 of Companies Act, 2013

This paper tries to explore the present status of CSR spending mandated by section 135 of the Companies Act, 2013 by NSE Nifty 200 companies by using simple percentage analysis. It is found that most of the selected companies are adhering to the CSR policy of allocating 2% of their average three years’ pretax profits. Overall an average of Rs. 6054.02 that is (1.86%) out of 2% limit has been spent; whereas, remaining Rs.1023.93 (0.31%) is kept unspent. Some companies like GAIL India Ltd. even spend more than 2% of their Average pretax profits and some companies had CSR amount unspent. The state wise classification, of CSR activities, showed most of the companies concentrated their CSR activities only on few developed States like Maharashtra, Tamil Nadu etc. showing region wise disparity in the implementation of CSR activities. Industry wise, analysis of CSR activities showed that electricity and manufacturing industries spent more than the actual CSR expenditure to be incurred. Whereas, other industries like financial service, mining, constructions and real estate, services (other than financial) left part of their CSR amount unspent. Manufacturing industries tops the contribution on a broad set of issues like education, health care and sanitization, sustainable livelihood, social causes and others. Out of NSE 200 companies, Reliance Industries Ltd. tops the list with highest CSR spending. Reliance Industries Ltd. had allocated had allocated 0.34% and 84% more than the two percent of CSR expenditure to be incurred as per the Companies Act, 2013. The study tries to put forward the need for the compulsory spending of the allocated CSR amount and also the proportionate distribution of CSR amount and activities among all states and union territories without sticking to the local areas where they operate. The paper suggests policy changes and amendment to the section 135 of the Companies Act in order to promote balanced regional growth and development throughout Indian States and Union territories.

Preliminary Study on Policy Mix Effects on Economic Viability of Carbon Capture and Storage Project in Japanese Steel Industry

This paper explores policy mix effects on economic viability of CCS project in Japanese integrated steel plant. We conducted a Monte Carlo simulation under uncertainties of firm's capacity factor (pre-tax profit) and carbon price. The results indicate that tax credit (35 US$/tCO2) improve economic viability of CCS in the case of favorable business conditions. Subsidies for CCS costs improve economic viability of CCS even in the case of recessions; however, the subsidy effect is sensitive to carbon price. Tax credit could be one of key policy measures as a part of policy mix both for Japanese economy and CO2 mitigation.

Financial performance measurement with the use of financial ratios: case of Mongolian companies

The aim of this paper is to examine the efficiency of Mongolian 100 public companies listed on Mongolian Stock Exchange (MSE) which are divided into 6 major sectors. This study conducts the performance of companies in terms of profitability by using three different output variables i.e., revenue, pretax profit and ROA (Return on Assets). In the beginning of this research, nine variables which are connected with profitability are chosen as output variables, while 24 variables expressing growth, financial structure, solvency, and turnover together with some fundamental financial data are chosen as input variables. 10 variables out of 24 input variables, which determine the financial structure, solvency, and profitability, are chosen as input variables based on the calculation of stepwise regression analysis. Stepwise regression, multi co-linearity analysis are made by SPSS and DEA (Data envelopment analysis) is evaluated by benchmarking package in R excel statistical program covering the period of 2012-2015. This paper uses the input-oriented version of DEA based on financial ratios and some crucial components of a financial statement. The results of DEA show that food and grocery sector was the most efficient, and mining sector was at the second place by its efficiency, while agriculture and service sector were the worse than other sectors.

Financial performance measurement with the use of financial ratios: case of Mongolian companies

The aim of this paper is to examine the efficiency of Mongolian 100 public companies listed on Mongolian Stock Exchange (MSE) which are divided into 6 major sectors. This study conducts the performance of companies in terms of profitability by using three different output variables i.e., revenue, pretax profit and ROA (Return on Assets). In the beginning of this research, nine variables which are connected with profitability are chosen as output variables, while 24 variables expressing growth, financial structure, solvency, and turnover together with some fundamental financial data are chosen as input variables. 10 variables out of 24 input variables, which determine the financial structure, solvency, and profitability, are chosen as input variables based on the calculation of stepwise regression analysis. Stepwise regression, multi co-linearity analysis are made by SPSS and DEA (Data envelopment analysis) is evaluated by benchmarking package in R excel statistical program covering the period of 2012-2015. This paper uses the input-oriented version of DEA based on financial ratios and some crucial components of a financial statement. The results of DEA show that food and grocery sector was the most efficient, and mining sector was at the second place by its efficiency, while agriculture and service sector were the worse than other sectors.

What Really Determines the Information Content of Tax Expense and Deferred Tax?

This study examines the informational role of tax expense and deferred tax and investigates the fundamental determinants of their information content. Our theoretical and empirical analysis shows that the association between tax expense and stock returns after controlling for pre-tax profit should be determined by the difference in the information content between permanent book-tax differences and the other pre-tax profit. Empirical evidence is that the relatively lower informativeness of permanent differences results in the positive relation of tax expense to stock returns. In addition, the earnings persistence of permanent differences is lower than that of the other pre-tax profit, and various firm characteristics, including the composition of permanent differences, affect the information content of tax expense. In addition, it is a temporary book-tax difference that bases deferred tax in substance. Therefore, the control variable in a regression analysis for deferred tax should not include the temporary difference-related items. Using such a revised regression model, this paper shows that deferred tax expense (liability) has a positive association with stock returns (price), contrary to prior studies. Our study contributes to the literature through clarifying the underlying mechanisms behind the information content of tax expense items and providing new findings on their informational role. Particularly, this paper has implications for future study in that it provides a guideline for interpreting the relationship between the regression coefficients regarding tax expense accounts and improves the prior research methodology.

AkzoNobel to exit chemicals within 12 months

AkzoNobel intends to divest its chemicals business within the next 12 months. The move will return more money to shareholders than would accepting an unsolicited takeover offer from PPG Industries, AkzoNobel’s CEO Ton Buchner told analysts at a London briefing on April 19. AkzoNobel said it will either float shares of its chemicals business on the stock market or sell the business as a whole to another company. Analysts estimate it will fetch between $8 billion and $12 billion. The divestment will create a chemicals business with annual sales of $5.0 billion, pretax profits of $1.0 billion, and about 9,000 employees. The business has five key units: surfactants, ethylene oxide and derivatives, polymer chemicals, chlorine-based chemicals, and bleaching chemicals. The sale will leave AkzoNobel as a paints and coatings company with annual sales of $10.0 billion, pretax profits of $1.2 billion, and about 37,000 employees. A sale or share flotation

Fine Industries sold to Chinese buyer

The private equity firm Northedge Capital has sold the Middlesbrough, England-based fine chemicals firm Fine Industries to China’s Lianhe Chemical Technology for an undisclosed sum. With 220 employees, Fine Industries had sales last year of $63 million and pretax profits of $12 million. It manufactures intermediates and active ingredients for pesticide and pharmaceutical customers along with a suite of specialty chemicals. Fine Industries was acquired by Degussa in 2001 before being sold to management in 2008 and then to Northedge in 2013.

Financial penalties and bank performance

Abstract This paper investigates the impact of financial penalties on the profitability and stock performance of banks. Using a unique dataset of 671 financial penalties imposed on 68 international listed banks over the period 2007 to 2014, we find a negative relation between financial penalties and pre-tax profitability but no relation with after-tax profitability. This result is explained by tax savings, as banks are allowed to deduct specific financial penalties from their taxable income. Moreover, our empirical analysis of the stock performance shows a positive relation between financial penalties and buy-and-hold returns, indicating that investors are pleased that cases are closed, that the banks successfully manage the consequences of misconduct, and that the financial penalties imposed are smaller than the accrued economic gains from the banks’ misconduct. This argument is supported by the positive abnormal returns accompanying on the announcement of a financial penalty.

Impact of the Financial Crisis of 2008 on Furniture Industry in the Czech Republic and Development of Tangible Fixed Assets in 2005-2012 and its Possible Renewal

This paper is focused on furniture firms in the Czech Republic during the period 2005–2012, which covers the year of the crisis. The aim was to assess the given economic situation of the manufacturing businesses comparing some of the economic indicators such as tangible fixed assets, revenue from own production and services, pre-tax profit and labor costs. The study was conducted in the Czech Republic using the data provided by the Czech Statistical Office. Results for the specified period and selected groups of micro furniture companies are shown; dependence of economic indicators within the given time period is also analyzed. The analysis has shown that the smallest of the firms were least affected by the economic crisis; moreover, the medium-sized of the companies exhibit tangible assets growth and certain degree of inertia in years 2008 and 2009. Finally, possibilities how the micro furniture companies could proceed when purchasing new technologies are outlined.

Evonik will acquire Air Products’ specialties

Air Products & Chemicals has agreed to sell its performance materials division to the German specialty chemical maker Evonik Industries for $3.8 billion in cash. The division had been earmarked for inclusion in Versum Materials, the new chemical company that Air Products intends to spin off. Versum will now only include Air Products’ electronic materials business. The performance materials division generated $241 million in pretax profits and about $1 billion in sales over the 12 months ending March 31. The division’s largest business, at about 40% of its sales, is epoxy-curing agents. It also makes polyurethane catalysts and specialty additives for coatings and other sectors. Evonik says these businesses closely intertwine with its own. “With this acquisition, we are expanding our portfolio with precisely the right markets, products, and innovations and continuing to invest in our growth and profitability,” Evonik CEO Klaus Engel says. Engel told financial analysts that the

Production Efficiency Analysis of the Hungarian Meat Processing Industry

This paper analyzes the performance of the Hungarian meat processing industry in the wake of the global financial crisis. Between 2011 and 2013 many high-capacity meat processors went bankrupt in Hungary. Possible reasons for that could be unfavorable market situation and inefficiency in production. In this paper, the latter hypothesis is examined. Two different types of production function estimation techniques are used to calculate firm-specific inefficiency estimates. Based on the estimation results, the lower bound of average firm-level efficiency is 0.50, while the upper bound is 0.88. Estimated firm-level inefficiencies are compared to the characteristics of the given firms. Pre-tax profit, company size and domestic ownership are associated with lesser inefficiency. On the other hand, time trend of inefficiencies indicate that the global financial crisis negatively affected the production efficiency of the meat processors. This can be a reason behind the bankruptcies happened.
 Journal of Economic Literature (JEL) codes: C33, L66

Does a common set of accounting standards affect tax-motivated income shifting for multinational firms?

I test whether adoption of IFRS by individual affiliates of multinational entities (MNEs) for unconsolidated financial reporting facilitates tax-motivated income shifting. MNEs often justify transfer prices to tax authorities by benchmarking intercompany profit allocations against a range of book profit rates reported by economically comparable, independent firms that use similar accounting standards. Additional qualifying benchmark firms resulting from IFRS adoption could allow managers to support more tax-advantaged transfer prices. Using a database of European unconsolidated financial and ownership information over 2003–2012, I first document an increase in the arm’s length range of book profits reported by potential IFRS benchmark firms following affiliate adoption of IFRS. I then estimate a statistically and economically significant 11.3 percent tax-motivated change in reported book pre-tax profits following affiliate IFRS adoption, relative to pre-adoption and non-adopter affiliate-years.

Applying Improved DEA & VIKOR Methods to Evaluate the Operation Performance for World's Major TFT–LCD Manufacturers

The whole panel industry has been impacted profoundly by global recession from 2007 to 2009, and the TFT–LCD industry is not an exception. Currently, the major TFT–LCD manufacturers cluster in South Korea, Taiwan and Japan, which totally contribute more than 80% sales in global market. All these TFT–LCD manufacturers face the five industry characteristics, including intensive capital, intensive technology, short product life cycle and fast technology advancement, fluctuating prices easily influenced by market demand/supply and business cycle, and international collaboration. In view of rapid growth of global demand, TFT–LCD manufacturers face a tremendous competition environment. Therefore, how to configure the best resource allocation and create more profits tend to be an essential issue for the managers of TFT–LCD industry. This paper employs improved DEA and VIKOR to evaluate the dynamic operation performances for TFT–LCD manufacturers in Taiwan, South Korea and Japan from 2002 to 2009. Research results show that South Korean firms have relatively better stable operation performances, while the performance of the firms in Taiwan and Japan are relatively worse and varied over time. After referring to the disclosure statements and industrial experts' opinions, this paper also portraits the reason of Sony with great performance in 2007 was resulted from the sales boost of high-level touch panels which leads to 50% high gross profit ratio and rapidly increasing pre-tax profit in 2007. As a result, how to develop high-level or multi-function panels might be an essential issue for the TFT–LCD manufacturers in Taiwan.

The optimal focus of transfer prices: pre-tax profitability versus tax minimization

This paper studies transfer prices influencing managerial decisions and determining corporate taxes in a multinational firm. Common sense suggests that the transfer price decision should be made to maximize the firm’s after-tax profit and thus achieve the optimal trade-off between pre-tax profitability and tax minimization. Based on a model of a decentralized firm facing asymmetric information with respect to operations, I examine why this conclusion does not hold in general. In particular, I demonstrate that a policy of negotiated transfer pricing, under which the divisions exploit their superior information but select the transfer price to maximize the firm’s pre-tax profit, is the firm’s optimal organizational choice if the high-tax division’s productivity is high. With respect to the firm’s discretion over the transfer price, I identify situations where the firm’s optimal policy choice does not depend on the arm’s length range and where less discretion increases the firm’s profitability.

Total Benchmarking Sebagai Alat Menilai Kewajaran Laporan Keuangan Dan Pemenuhan Kewajiban Perpajakan

AbstractThe objective of this research is to provide empirical evidence on the utilization of total benchmarking ratio as a mean to assess the fairness of financial statement and the fulfilment of tax obligation in financial intermediaries sector. Variables to be tested in this research are 14 ratio of benchmarking total consist of: Gross Profit Margin (GPM), Operating Profit Margin (OPM), Pretax Profit Margin (PPM), Corporate Tax to Turn Over Ratio (CTTOR), Net Profit Margin (NPM), Dividend Payout Ratio (DPR), Value-added Tax Ratio (pn), Salary/Sales Ration (g), Interest/Sales Ratio (b), Rent/Sales Ratio (s), Depreciation/Sales Ratio (py), Outside-business Revenue/Sales Ratio (pl), Outside-business Cost/ Sales (bl), Other-input/Sales Ratio (x). This research incorporates financial intermediaries sector because it has contributed to the 5 largest tax revenue in last 5 years. The research method used is descriptive qualitative method by calculating ratios then compare them to the benchmark set by the Directorate General of Taxes. The sample of this research is Business Field Classification (Klasifikasi Lapangan Usaha) in the financial intermediary sector: foreign exchange banks, insurance and consumer financing companies. The type of data used is secondary data, that is audited financial statements gathered form ICMD. The research results show that the largest ratio difference for foreign exchange banks and insurance companies is at interest expense; however, the largest ratio difference for consumer financing is at outside-business Costs.