Unrelated Business Research Articles

DIGITAL PLATFORMS AS A CONDITION FOR INCREASING INNOVATION AND COMPETITIVENESS OF SMALL AND MEDIUM ENTERPRISES IN THE EU

The purpose of the study is to consider the potential of digital platforms as an environment for the formation of new types of relationships to promote the development of innovation and competitiveness of small and medium-sized enterprises in the EU. The main goal of digitalization, as defined in the normative documents of the European Commission, is to improve the use of the potential of information and communication technologies to promote innovation, support economic development and stimulate scientific and technological progress in general, and ultimately contribute to the formation of “smart”, sustainable and inclusive growth of the region’s economy A set of important measures is already being implemented and developed. Among them, the creation of a single digital market, which is considered as a primary goal of the European Commission strategy to ensure guaranteed access to online activities for citizens and businesses in a fair competitive environmen. Measures are being taken to reduce the cost of intercountry shipping of goods purchased online, the prices of which are 3-5 times higher than those for transactions carried out within individual countries. In order to enable the digital transformation of European industry and services, particular attention will be paid to the development of cross-sector, integrated digital platforms and large-scale pilot platforms for experimentation and co-creation with users. We define a digital platform as an organisation that offers digital services facilitating interactions between two or more different but interdependent groups of users (suppliers and individuals) via the Internet and that generate network effects. The following are characteristics of a systemically important digital platform: operating in a majority of EU countries; having significant influence on the internal market, namely the annual turnover of a group of companies; the ability to connect a large number of users with a large number of suppliers of goods (services), namely more than 45 million monthly active users located in the EU, or more than 10,000 commercial users located in the EU in the last financial year); having established economic power and stable income from intermediary services provided in the EU. In the presence of indirect network effects, the volume of demand for the platform's services will depend, among other things, on the price level and the economic model of the ecosystem. Also, when developing the EU draft law on digital markets, the European Commission, while formulating the characteristics of digital ecosystems (large digital platforms), noted the importance of having a plurality of digital services. The concept of a digital ecosystem should not include digital platforms with a single service. The digital nature of the ecosystem allows it to quickly introduce new functions and integrate data across multiple unrelated business lines and markets. These factors allow the ecosystem to avoid the traditional costs associated with rapid business expansion, both vertically (by using its services in new markets) and horizontally (by expanding the “range” of services). The digital platform uses information about the sales of suppliers on its platform to research the market and develop its own line of competing products. In this regard, the company can be accused of promoting its own products in this way. These features of the functioning of digital platforms determine the need to revise the criteria for compliance with the principles of competition. As a result of processing the user habits of citizens, the ecosystem issues a personalized offer. The consequence of this may be price discrimination, when some customers are offered more expensive goods than others, depending on their purchasing power. In this regard, it is proposed to oblige platforms to disclose the principles of such pricing. Disclosure requirements and pricing transparency are effective mechanisms for regulating the existing problem, since they increase consumer awareness, facilitate price comparison and prevent consumers from being misled. However, experts note that disclosure of pricing rules can weaken competition in the market and increase the overall price level. This measure can also lead to a lag in the development of recommendation services in the global market, a violation of commercial secrets, additional costs and a slowdown in the development of digital platforms.

An Analysis of Nonprofit Organization Federal Income Tax Avoidance Using Publicly Available Income Tax Return Data

ABSTRACT Nonprofit organizations are subject to an Unrelated Business Income Tax (UBIT) on activities unrelated to their tax exempt purpose. In 2007 nonprofits became the first U.S. federal taxpayers required to publicly disclose their income tax returns. Using this data I find that nonprofits avoid the UBIT by combining losses from some activities to offset the profits of other activities. A provision in the Tax Cut and Jobs Act of 2018 was effective in mitigating the use of loss activities as a UBIT avoidance method. I also find that nonprofits continue to avoid the UBIT by shifting common costs from tax exempt to taxable activities. I find that UBIT avoidance is increasing in tax rates. Finally, tax avoidance is smaller for the set of nonprofits organized as charitable trusts rather than as corporations or associations, and that public donors play a governing role by mitigating UBIT avoidance. Data Availability: Data are available from sources identified in the text. JEL Classifications: H26; L30.

SoS ‐ Global Solutions to Global Problems Using UAF

AbstractThis paper applies Unified Architecture Framework (UAF) to a case study which defines the global copper market as an enterprise comprising a diverse set of stakeholders and independently operating businesses and industries, with the goal to understand how they might evaluate, execute, or modify their behaviors in response to the diminishing global copper supply. Specifically, we sought to determine if the framework viewpoints, modeling language, and workflow guidance provided in the UAF specification could support the analysis. In a true System of Systems (SoS), the solution (or any improvement) relies on the cooperation of a multitude of independent and unrelated businesses and industries. Several viewpoints of UAF were evaluated to model the SoS, which reveal how certain entities may be motivated to implement solutions, and how those decisions may impact others within the SoS. We also provide observations from the analysis which may serve to improve the utility of UAF in other applications.

Merger and Acquisition in Banking Industry

Mergers and acquisitions (M&A) represent significant strategic maneuvers in corporate finance and management, involving the combination, acquisition, or division of companies to achieve various objectives. This paper explores the fundamental concepts of M&A, focusing on mergers as agreements uniting two companies into one entity. Mergers are pursued to expand reach, enter new markets, diversify offerings, or gain market share, ultimately aimed at creating shareholder value. Two primary types of mergers are discussed: conglomerate mergers, which involve companies in unrelated business activities, and congeneric mergers, where companies operate in the same sector with overlapping factors. Understanding the nuances of these mergers is essential for stakeholders involved in corporate decision-making. Additionally, regulatory frameworks, such as the Companies Act, 1856, play a crucial role in governing M&A transactions, although regulatory landscapes may vary across jurisdictions. By delving into the intricacies of M&A, this paper provides insights into strategic management practices and the dynamic landscape of corporate restructuring.

Business diversification choices: do director incentives matter?

PurposeMuch prior work involving director incentives and corporate behaviour has been focussing on their absolute dollar value or the intrinsic value and generated mixed findings. Comparison theories, however, suggest that the relative value of an incentive may be the main drive for individual performance. This study attempts to investigate the role of director relative pay in promoting the board’s intervention with unrelated diversification decisions.Design/methodology/approachThe analysis uses data from firms operating in more than one segment during the period from 1999 to 2019. Data were obtained from WRDS databases. Ordinary least squares (OLS) regression analysis and the two-stage system generalized method of moments (GMM) were run to test the hypotheses. To test the robustness of the findings, alternative proxies for the key independent variables were used in separate analyses.FindingsThe results support the hypothesis that unrelated diversification negatively impact firm performance, while higher director relative pay will help reduce unrelated business diversification. The absolute director pay, however, has no significant impact on corporate strategic choices. The results also highlight the moderating effect of director overcompensation. Director overcompensation will cancel out the impact of relative director pay on unrelated diversification.Originality/valueThis study takes a fresh theoretical perspective by framing the investigation using the dimensional comparison theory to address the single untended comparison framework in the director pay structure – the intra-individual framework. It is the first to investigate the role of director relative pay in corporate strategic choices. The findings support the contention that the relative value of the incentive is an important indicator of the effectiveness of the pay.

Absorptive capacity components: Performance effects in related and unrelated diversification

We study how firms can benefit from external knowledge resources contingent on absorptive capacity. We separate the three components of absorptive capacity – acquiring, assimilating, and exploiting external knowledge – and posit that the benefits of a firm's knowledge expansion through diversification into related and unrelated business domains differ by the firm's relative emphasis on the three components. We test our predictions on a panel of 153 large US-traded ICT firms. Our analysis broadly supports our hypotheses, highlighting the unique contribution of individual absorptive capacity components to organizational learning through diversification strategy.

Pengembangan Usaha Koperasi Agar dapat Mengenal Pasar dan Pesaing

Cooperative business is certainly different from other types of financial companies, where the establishment process is based on principles, values, and norms that must be adhered to. Cooperative members are the owners of managed funds so that cooperatives must develop so that all members can enjoy the benefits which are ultimately aimed at the welfare of members. Developing cooperatives does not always run smoothly due to a lack of strategy or preparation. Cooperatives can run smoothly and develop if managed properly. The management of the duties of each member and the management of finances in the cooperative must be clear and neat. The types of strategies that can be chosen by cooperatives are broadly distinguished between corporate-level strategies and business unit-level strategies. The types of strategies that can be chosen at the corporate level include: single business, related business diversification, and unrelated business diversification or conglomeration. Meanwhile, the types of strategies that can be chosen at the business unit level include cost minimization, product differentiation, concentration on certain markets or a combination of the three. The problem experienced by the Mitra Armindo Jaya Cooperative is that the cooperative is relatively new, so it does not yet have an adequate understanding of cooperatives. The solutions offered in this activity, among others, provide an overview of how cooperative business development efforts are to be able to recognize the market and competitors so that existing business opportunities or opportunities can be utilized, and can overcome business obstacles that will interfere with the achievement of cooperative goals.

Book Reviews

Book Reviews

Court Explores Concept of Research

It has been some time since a court explored the concept of research in the tax‐exempt organizations law context, such as in connection with the field of scientific research or the unrelated business rules. A recent US Tax Court opinion, however, reviewed this concept in the setting of the research and development tax credit (IRC § 41) (Leon Max v. Commissioner (March 29)). While the statutory law concerning the credit is more detailed, the basic issue in both tax fields is the same: Is the activity truly research or is it merely carried on incident to commercial operations (e.g., testing or designing)? As the following illustrates, the law in this regard as to the credit generally aligns with exempt organizations law.

TIGTA Wants Increase in IRS UBI Enforcement

As discussed in the December 2020 issue, the 2021 Annual Audit Plan of the Office of the Treasury Inspector General for Tax Administration includes a review of the TE/GE Division's efforts to identify and examine tax‐exempt organizations with unreported or underreported unrelated business income tax. TIGTA's report on the topic is dated February 24.

ASSET INVESTMENT DIVERSIFICATION, BANKRUPTCY RISK AND THE MEDIATING ROLE OF BUSINESS DIVERSIFICATION

This paper explores the structural relationship among asset investment diversification, business diversification and the bankruptcy risk of firms. Asset investment diversification is divided into two components, namely related and unrelated asset investment diversification, while business diversification includes related and unrelated business diversification. In the hypothetical relationship, business diversification is proposed to play a mediating role to explain the effect of asset investment diversification on bankruptcy risk. Specifically, related and unrelated asset investment diversification affect bankruptcy risk through two mediators, namely related and unrelated business diversification. Hence, it is vital to employ the general linear structural model (GSEM) with panel data on 470 businesses publicly listed in Vietnam from 2008 to 2017. Surprisingly, the empirical results show that both related and unrelated asset diversification have positive impacts on bankruptcy risk. Nevertheless, only related business diversification plays a mediating role between related asset diversification and bankruptcy risk, while unrelated business diversification has an insignificant mediating effect on the relationship between unrelated asset diversification and bankruptcy risk.

Are There Limits to Diversification in Emerging Economies? Distinguishing between Firm‐Level and Business Group Strategies

AbstractThe viability of unrelated diversification as a strategy in emerging economies is an unresolved puzzle. Because business groups dominate the landscape in these economies, and are known to diversify either by expanding the scope of existing affiliate firms and/or setting up new firms, we argue that it is important to make a distinction between firm‐level and business group‐level diversification. The results of our study covering the 15‐year period following India’s economic liberalization confirm our thesis. Whereas all firms, including business group affiliates, reduced unrelated scope to negotiate product and capital market pressures, business groups took advantage of the opportunity‐rich, post‐reform environment to enter into new unrelated businesses by setting up new affiliates. Our findings echo suggestions that as institutions strengthen, the locus of unrelated diversification moves away from managers of public corporations to entities with different types of ownership structures. We present the business group as one such ownership structure.

Final Bucketing Rule Regulations Issued

The Department of the Treasury and the IRS, on November 19, made public final regulations concerning the bucketing rule, used in computing tax‐exempt organizations' unrelated business taxable income (IRC § 512(a)(6)) (T.D. 9933). The proposed regulations are summarized in the July 2020 issue.

Association's Job‐Placement Service Ruled Unrelated Business, Income Not Royalties

The IRS national office, by technical advice memorandum, ruled that operation of an online job‐placement service by a public charity constitutes an unrelated business and that the resulting income does not qualify as a royalty (TAM 202039018).

Final ABLE Programs Regulations Issued

The Department of the Treasury and the IRS, on October 1, issued final regulations providing guidance regarding programs under the Stephen Beck Jr. Achieving a Better Life Experience Act of 2014 (ABLE Act) (T.D. 9923). A qualified ABLE program is a tax‐exempt organization (IRC § 529A(a); Reg. § 1.529A‐1(a)). It is subject to tax on any unrelated business taxable income, although certain administrative and other fees do not constitute unrelated business income (Reg. § 1.511‐2(e)).

Hospitality industry economic innovation out of tradition small–medium‐size enterprises in North‐Eastern Thailand

AbstractThis study focuses on the creation of economic innovation out of tradition in small–medium‐size hospitality industry enterprises in the north‐eastern part of Thailand. We looked at the role of the roots of the business on its development and the roots vary from existing old traditional accommodations, to accommodations that developed out of a restaurants or a totally different types of hospitality related or unrelated businesses. We also looked as hospitality institutions that developed out of an existing building that could house accommodations or be expanded to a hotel. With the structure naturally comes the location. In real estate as in tourism location plays a very important role, location, location and location. So a three‐star hotel may have developed out of a homestay or a bed and breakfast or a simple family restaurant. We did not look at the hotels that were the result of planned developments of real estate developer and hotel franchise operator. Innovation is broadly defined as a new idea, method or product. Product, process or service innovations may have their roots in the traditions of the business. Traditions are long established customs, believes that have been transmitted over generations or time in general terms. The study is quantitative in nature and explored a convenience sample 100 small–medium‐size hospitality enterprises in the north‐eastern part of Thailand by administrating a pretested survey to the owner/operators. The sample is a good representation of the hospitality industry in Thailand under the business model of tradition as an engine for innovation and the ongoing academic debate which generates implications for hospitality industry best practices and as strategic resource.

IRS proposed revised rules for accounting for unrelated business income

IRS proposed revised rules for accounting for unrelated business income

Bucketing Rule Proposed Regs Issued

April 23 brought the long‐awaited proposed regulations from the Treasury Department and the IRS concerning the bucketing rule, used in computing tax‐exempt organizations' unrelated business taxable income (IRC § 512(a)(6)) (REG‐106864‐18).

IRS Ruling Issued as to Rents From Real Property

A fundamental component of unrelated business income law is the exclusion from the computation of unrelated business taxable income of rents from real property (IRC § 512(b)(3)). In that connection, the tax regulations state that payments for the occupancy of space, where certain services are provided to the occupant, do not constitute rent from real property (Reg. § 1.512(b)‐1(c)(5)).

Financial performance and corporate diversification strategies in professional football – evidence from the English Premier League

PurposeProfessional football clubs have increasingly initiated two corporate diversification strategies to enfold growth opportunities besides traditional income sources: business diversification and international diversification. Empirical findings from management and sport management literature provide inconclusive evidence on these strategies' financial performance effects, necessitating further research. The purpose of this article is therefore to investigate how both corporate diversification strategies affect the financial performance of professional football clubs.Design/methodology/approachA 15-year panel data set of English Premier League (EPL) clubs is examined, many of which have employed corporate diversification strategies. Measures for related business diversification (RBD) and unrelated business diversification (UBD) as well as international diversification are established from management literature. Based on fixed effects regression models, their effects on clubs' revenues and profitability are then examined.FindingsU-shaped effects from RBD on revenues and profitability are found, but no effects from UBD. These findings empirically support the theoretically appealing superiority of RBD over UBD and, with increasing levels of RBD, over a focused strategy in management literature. With international diversification, an inverted U-shaped effect on revenues is identified.Research limitations/implicationsDespite focusing only on the EPL, these findings provide new evidence of non-linear financial performance effects from corporate diversification strategies adding to (sport) management literature and setting the stage for future research on these strategies in professional football.Practical implicationsThese findings have significant implications for club managers' strategic growth opportunities such as new business models or geographic markets.Originality/valueThis is the first study to empirically examine the financial effects of corporate diversification strategies in the football market context.