Announcement Of Reforms Research Articles

The political business cycle of tax reforms

A political business cycle (PBC), with governments adjusting and timing economic policy for electoral gains, has long been hypothesized. A lack of data has so far limited testing of this phenomenon for government policies as opposed to fiscal outcomes such as tax revenue or government deficit, especially at the national level. We use new monthly data on tax reform announcements for a set of 22 democracies, 1988–2014, to test the PBC hypothesis for taxation. In addition to the traditional electoral strategy formulation of the PBC, we also put forward and test a capacity version of the PBC. We find evidence for the capacity version but not the traditional version of the PBC: tax reforms are less likely to be announced before elections and more likely after elections, independently of whether they are increases or decreases. Our evidence suggests that while a PBC exists, it may be less driven by strategic electioneering and more innocuous than previously assumed.

Measuring the Expected Effects of the Global Tax Reform

Abstract Over 140 countries agreed on a fundamental corporate tax reform in 2021 to be implemented in 2023 and beyond. To measure its potential effects, we study asset price changes within minutes of the reform announcements. We construct proxies for the reform’s costs regarding U.S. companies’ tax burdens and countries’ public finances. Likely exposed companies exhibit significant negative stock returns. Our lower-bound estimates indicate total shareholder value losses of $112.6 billion one day after the reform announcements. Further, likely exposed countries experience increases in sovereign debt credit risk. Our findings inform the cost-benefit analysis of a historical international tax reform. 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.

Impact of positive and negative emotions on protest for institutional reform: An analysis of #EndSars Twitter posts

A protest is a collective action undertaken by a group of people to achieve a common goal. Participation in protests is motivated by appraisals of a social condition. The dual pathway model of collective action has been extended to consider both negative and positive emotional paths to protest. This study further shows the prevalence of positive and negative emotions as they differ systematically between the different phases of protest. This study divides the protest period into four phases: before the trigger event, during the trigger event, during the protest, and reform announcement. A sentimental analysis of how positive and negative emotions vary across the four phases of protest was conducted using the Twitter posts of the #EndSARS protest in Nigeria. Findings revealed that both positive and negative emotions co-occur alongside the protest phases. Trust was dominant before the trigger event, fear was dominant during the trigger event, anger was dominant during the protest and joy was dominant following the reform announcement. Findings from this study indicate that fear and anger instigate protest. Anticipation motivates protest and joy is the feeling of satisfaction experienced when the goal of a protest is achieved.

The effect of political influence on corporate valuation: Evidence from party-building reform in China

The party-building reform in China aims to strengthen the party-state control of firms by formalizing the Chinese Communist Party’s (CCP) role in corporate charters. We employ the reform as an exogenous shock to examine the effect of political influence on corporate valuation in the state-dominated economy. We first develop a hazard model of firms’ responses to the reform and use the predicted hazard rate as a proxy for a firm’s ex ante political influence. We find a positive correlation between firm valuation changes and the predicted hazard rate in the events of party-building reform announcements and a consistent long-term valuation effect based on the difference-in-differences analyses. We also find that the market reacts negatively when firms elect to adopt charter provisions that allow the CCP to control their personnel decisions. Together, our results are consistent with the hypothesis that the effect of party-building reform on a firm’s valuation depends on the trade-off between the benefits from the increased state capture and the costs of state influence in firm governance and that the enhanced political control costs are mitigated for firms with stronger existing political ties. This paper contributes to the literature by introducing a novel and integrated approach to measuring political influence that goes beyond the traditional state ownership measurement and by identifying ex ante political influence as an important factor in corporate valuation.

Policy Uncertainty and Information Flows: Evidence from Pension Reform Expectations*

Abstract We examine how workers’ expectations about pension reform vary with proximity to reforms, information availability and worker characteristics. Using newly collected data, we find that (1) expectations about reform are revised upward by about 10 percentage points in the year prior to a reform, from a median of 50%, regardless of whether the reform is announced; (2) expectations increase more the stronger the media activity about imminent reforms; (3) the effect of information on expectations varies systematically with characteristics that proxy cognitive ability and information value; (4) expectations do not converge as a result of reform announcements or implementations.

Do markets react to corporate governance reforms? Evidence from a developing economy

PurposeThe purpose of this study is to investigate market reaction to corporate governance reform pronouncements on board diversity in Kenyan listed firms.Design/methodology/approachAn event study was performed using 240 days pre-event period and an event period that consisted of 25 days pre and 25 days post the March 2016 board diversity reforms announcement in Kenya. The difference in differences (DiD) method was also used for cause–effect analysis for two years before and three years after the March 2016 board diversity reforms announcement. The outcome variable was firm value, whereas the treatment and control groups were Kenyan listed firms and deposit-taking credit unions, respectively.FindingsThe event study method found cumulative abnormal returns after the date of the board diversity reforms announcement to be positive and significant. The DiD methods found a positive and significant market reaction to the March 2016 board diversity reforms announcement in Kenya.Research limitations/implicationsThis study was limited by the secondary data that was collected and analyzed from financial statements and stock price data from the Nairobi Securities Exchange (NSE). Financial statements have the disadvantage of being affected by the judgment and estimates of their preparers or accountants.Practical implicationsEmerging markets like the NSE are vulnerable to market manipulation by insiders. Efficient stock markets are known to attract more investors who are interested in a trustworthy stock price determination mechanism. The Capital Market Authority should thus continue implementing corporate governance reforms aimed at improving the efficiency of the NSE and the trustworthiness of stock prices therein. The continued reforms thus imply better value for money for the NSE investors.Originality/valueThis study makes an important contribution to literature by combining an event study and DiD analysis to assess market reaction to board diversity reform announcements in emerging markets of sub-Saharan Africa which is a concept that has not been researched before. Past studies have used event studies to investigate the efficiency status of stock markets in sub-Saharan Africa, whereas the current study used an additional method of DiD and hence contributed to literature.

The revenue efficiency consequences of the announcement of a tax transition reform: The case of WAEMU countries

AbstractDoes the revenue replacement strategy of border taxes with domestic revenue collection (tax transition) increase efficiency in collecting revenues in developing countries? This article attempted to answer the question, by assessing the efficiency consequences of announcing a tax transition reform program in West African Economic and Monetary Union (WAEMU) countries. Through an impact evaluation framework with propensity score matching and synthetic control method, we find that the announcement of this reform in WAEMU countries increases efficiency in mobilizing resources at the community level as compared to their counterfactual. Efficient mobilization of resources increases by 4.3% around the reform agenda and is achieved 3 years following the announcement of the reform in these countries. We also find that the achieved efficiency in mobilizing resources goes hand in hand with an improvement in tax‐oriented Doing Business indicators at the community level, by increasing the contribution rate score of firms by near 22 scales and reducing collection time scores by 4.2 scales as compared to the best Doing Business practices on these indicators. The article also evidenced that the reform is overall working through the tax discipline channel rather than tax morale in these countries. Furthermore, having adopted value added tax (VAT), implemented semi‐autonomous revenue agencies (SARAs) and large taxpayers' units (LTUs) contribute to foster the revenue efficiency effect of the reform in above‐mentioned countries.

The government whispering to entrepreneurs: Public venture capital, policy shifts, and firm productivity

AbstractResearch SummaryGrounding on the literature on resource dependence, board political capital, and principal–principal conflicts, I conceptualize governmental minority shareholding as a governance strategy through which ventures access information about future policy shifts and better calibrate their decisions before policy implementation. I test these arguments on multicountry firm‐level longitudinal data about European venture capital (VC)‐backed and comparable non‐VC‐backed companies. By means of a difference‐in‐differences methodology and exploiting the staggered announcement of tax reforms across countries, I show that public VC‐backed companies after a tax reform announcement show higher productivity than non‐VC‐backed ventures, and this effect lasts 4 years. After decomposing productivity, the post‐announcement effect of public VC backing is mainly due to both an output effect (sales value increase) and an enhanced efficiency in the labor factor.Managerial SummaryVentures facing market uncertainty may benefit from having a governmental minority shareholder on board. Governmental minority shareholders bring political capital in the form of information about future business‐related policy changes, as well as connections to debt capital providers. Plus, their minority status makes conflicts with the entrepreneur (and other shareholders) less likely. In this way, after a policy reform announcement, entrepreneurs backed by governmental minority shareholders (such as public venture capitalists) can better predict market changes and react more quickly than comparable non‐backed firms to those changes. In sum, governmental minority shareholding represents an effective governance strategy for ventures to reduce their uncertainty and access information and resources that would be out of reach for both the ventures and all other types of shareholders.

Political Influence and Corporate Governance: Evidence from Party-Building Reform in China

We focus on the recent Dangjian (“party-building”) reform, a major measure taken by the Chinese Communist Party (CCP) to strengthen its leadership position in Chinese state-owned enterprises (SOEs). We hypothesize that, given the unique governance and ownership structure of Chinese firms, there is a trade-off between the political costs and benefits of the mitigated agency problems. We report negative investor reactions to privately-owned enterprises (POEs) after the Dangjian reform announcements, consistent with the hypothesis that strengthening party control over business is harmful to business efficacy and firm value. We also find evidence that the increased risks of political influence due to the reform undermine the value of SOEs that are considered more independent of political power (i.e., those under corporate pyramids or cross-listed on a foreign market). In addition, the market reacted negatively when firms incorporated the provision to adopt the party’s cadre management principle, which allows the CCP to intervene in firm management.

Should a pension reform be announced? A reply

Fedotenkov (2016) shows that a reduction in the pay-as-you-go (PAYG) contribution rate leads to larger welfare losses for the first transitional generation if the reform is announced in advance. His analysis is based on expected lifetime utility at the reform announcement date. This note reconsiders the reform from the alternative perspective of implementation date. It argues that an announced reform may be preferable because it raises realized consumption of the first transitional generation in old age. Implications for social welfare evaluations are illustrated with a numerical example.

The effect of a change in co-payment on prescription drug demand in a National Health System: The case of 15 drug families by price elasticity of demand.

ObjectivesTo test the heterogeneity of the effect of a change in pharmaceutical cost-sharing by therapeutic groups in a Spanish region.MethodsData: random sample (provided by the Canary Islands Health Service) of 40,471 people covered by the Spanish National Health System (SNHS) in the Canary Islands. The database includes individualised monthly-dispensed medications (prescribed by the SNHS) from one year before (August 2011) to one year after (June 2013) the Royal Decree Law 16/2012 (RDL 16/2012). Sample: two intervention groups (low-income pensioners and middle-income working population) and one control group (low-income working population). Empirical model: quasi-experimental difference-in-differences design to study the change in consumption (measured in number of monthly Defined Daily Dose (DDDs) per individual) among 13 therapeutic groups. The policy break indicator (three-level categorical variable) tested the existence of stockpiling between the reform’s announcement and its implementation. We ran 16 linear regression models (general, by therapeutic groups and by comorbidities) that considered whether the exclusion of some drugs from public provision impacted on consumption more than the co-payment increase.ResultsGeneral: Reduction (-13.04) in consumption after the reform’s implementation, which was fully compensated by a previous increase (16.60 i.e., stockpiling) among low-income pensioners. The middle-income working population maintained its trend of increasing consumption. Therapeutic groups: Reductions in consumption after the reform’s implementation among low-income pensioners in 7 of the 13 groups, which were fully compensated for by a previous increase (i.e., stockpiling) in 4 groups and partially compensated for in the remaining 3. The analysis without the excluded medicines provided fewer negative coefficients. Comorbidities: Reduction in consumption that was only slightly compensated for by a previous increase (i.e., stockpiling).ConclusionsThe negative impact of cost-sharing produced, among low-income pensioners, a risk of loss of adherence to treatments, which could deteriorate the health status of individuals, especially among pensioners within the most inelastic therapeutic groups (associated with chronic diseases) and patients with comorbidities (also, associated with chronic diseases). Notwithstanding the above, this risk was more related to the exclusion of some drugs from provision than to the cost-sharing increase.

Ownership, tax and intercorporate loans in China

PurposeThis paper aims to investigate the interconnections between corporate ownership, tax system and controlling shareholder tunneling through intercorporate loans in an emerging market setting.Design/methodology/approachChina’s Enterprises Income Tax reform in 2008 abolished its previous multiple-tiers tax system under which foreign direct investment (FDI) firms enjoyed preferential tax rates than domestic firms by introducing a new unified-rate tax system. Using difference-in-differences tests, the author analyzes changes of controlling shareholders tunneling through intercorporate loans among Chinese listed companies around this reform.FindingsThe author documents significant reductions of intercorporate loans after the reform. More importantly, the author reveals that foreign-invested firms experienced larger reductions of intercorporate loans than domestic firms. The author also shows that state association matters for domestic firms’ response to the reform. In addition, the author documents positive stock market reaction to the tax reform announcement for firms that exhibited higher level of tunneling prior to the reform, indicating market expectation of reduced principal-principal conflict post-reform.Research limitations/implicationsThe findings suggest effective corporate governance system is warranted to constrain intercorporate fund transfers in emerging markets where tax incentives are used for attracting inward foreign direct investments. Institutional reforms in emerging markets aimed at removing market frictions can alleviate the problem of controlling shareholder expropriations of minority interests or tunneling.Originality/valueThis is a pioneering study that reveals the role of tax as a public governance mechanism in weak minority investor protection environment.

Market-based Financing Reforms and Shareholder Valuations: Event Study Evidence from the Chinese Science and Technology Innovation Board

This paper studies the impact of the newly introduced science and technology innovation board (STIB) on stock valuations in China. This Nasdaq-style board features a market-based IPO system that contrasts with the current approved-based arrangement. Event study approach shows that A-share firms pertaining to STIB related industries increased significantly after the reform announcement. The effect is stronger for Non-SOEs and firms with higher R&D capacity. Public shareholders of the firms filing STIB IPO applications experienced salient growth in their abnormal returns while their industry competitors suffered price drops. Financial analysts also broadened their company coverages in STIB related industries and revised their market valuation forecasts positively in line with the market investors.

Policy Uncertainty and Information Flows: Evidence from Pension Reform Expectations

Subjective expectations about future policy play an important role in individuals' welfare. We examine how workers' expectations about pension reform vary with proximity to reforms, information cost, and aggregate information acquisition. We construct a new pan-European dataset of reform implementations and government announcements, and combine it with individual-level representative survey data on expectations about future reforms and country-level data on online search. We i¬ nd: (1) Expectations are revised upward by about 10 percentage points in the year leading up to a reform, from a median of 50%, regardless of whether the reform is announced; (2) Aggregate online search increases after announcements, when the cost of information is lower; (3) Reform announcements and online information gathering are substitutes in the formation of expectations; (4) Expectations do not converge as a result of announcements or implementations; (5) The ei¬?ect of information on expectations varies substantially across workers and systematically with observed characteristics that proxy cognitive ability and information value. These i¬ ndings, interpreted using a model of rational inattention, reveal substantial informational rigidities, with welfare costs that run into trillions of Euros.

Risk-sharing, market imperfections, asset prices: Evidence from China’s stock market liberalization

We examine the roles of risk-sharing and other factors in stock price revaluation during a recent liberalization episode in China. Consistent with the theoretical prediction that liberalizations reduce systematic risk, we find that risk-sharing explains approximately one-fourth of the price revaluation of investible stocks during the eight-month window between reform announcement and implementation. The firm-specific information generated by the reform is more efficiently priced into stocks that have a higher degree of market liquidity, information transparency, and informed trading.

Capital account liberalization and dynamic price discovery: evidence from Chinese cross-listed stocks

ABSTRACTWe analyse the effects of a recent financial reform (Shanghai-Hong Kong Stock Connect) that enables cross-market investment between Hong Kong and Shanghai stock exchanges. Using a VECM, we find that the reform announcement considerably narrows the equilibrium level of price disparity and strengthens the price comovement of shares that are cross-listed in both markets. The estimated equilibrium relationship is in support of the relative law of one price. We find that both markets adjust in response to a disequilibrium in price disparity, leading to a sizeable error correction activity. The Shanghai market contributes to approximately two-thirds of the price discovery process. Competition and informativeness of trading affect the relative role of price discovery in each market. Finally, the reform implementation reinforces the long-run cointegration relationship and strengthens the short-run price comovements of cross-listed stocks despite the widening price disparity during the period.

The Effect of Risk Sharing on Asset Prices: Natural Experiment from the Chinese Stock Market Liberalization

In a recent stock market reform, over half of the stocks listed in the Shanghai Stock Exchange became purchasable by foreign investors. Theory predicts that the price revaluation of an investible stock should be positively associated with the reduction in systematic risk. Using the policy as a natural experiment, we test this implication using a difference-in-differences estimator and a sample of 786 stocks in the Shanghai market. We find that risk-sharing explains over 40 percent of the price revaluation of investible stocks during the eight-month window between reform announcement and implementation. The results support the efficiency of the Chinese stock market, to the extent that the reduction of systematic risk is priced into those stocks that are affected by the liberalization.

Netherlands Government Bites the Bullet: Fiscal Agenda - Tax Policy and Reform Announcements

In this article, the authors comment on the background, content and corporate income tax (the "DCIT") implications of the 2011 Netherlands Fiscal Agenda. The authors' view is that the Netherlands government is correct to opt for a reduced DCIT rate and a stable tax environment, rather than special tax regimes.

The Costs of Large Shareholders: Evidence from China

This paper tests the relation between large shareholders and firm value using a recent reform in China's equity market. The reform strengthened large shareholders' cash-flow rights relative to voting rights. The paper finds that large shareholders expropriate less through related party transactions after the reform when the discrepancy between their voting rights and cash-flow rights prior to the reform was larger. It also finds that minority shareholders gain from the reform: firms earn higher excess returns around the reform announcements when the discrepancy was larger. Finally, it provides the evidence of efficiency gains associated with the reform. The paper concludes that the discrepancy between large shareholders' voting rights and cash-flow rights can lead to efficiency losses.

Pengaruh Pengumuman Undang-Undang Perpajakan Tahun 2000 Terhadap Harga Saham

Tax regulation in lndonesia hos been changed for several times. The purpose is to stimulate basiness in Indonesia so that it will increase national income. One of the main purpose of Tax Reform 2000 is to increase companies' efficiency. As a result it wilt maximize companies' value through stabilizing and increasing stork capitalization. The aim of this research is to investiate whetlter tax reform announcement influence stock price, klown as abnormal return. Data is gathred from Jakarta Stock Exchange and samplewas manufactured indutries. The resesrch showed that there was abnormal returned for several days arround tax reform announcementKey words: Tax regalation, stock price, abnormal return.