Opportunities to Divert, Firm Value, and Taxation: Theory and Evidence from European Firms

38 Pages Posted: 23 Sep 2011

See all articles by Robert Krämer

Robert Krämer

Goethe University Frankfurt - Faculty of Economics and Business Administration

Vilen Lipatov

Cornerstone Research; CESifo

Date Written: August 12, 2011

Abstract

We study the relationship between opportunities for managerial diversion, corporate tax system parameters and the return on shareholder funds. Theoretically, in a simple game between corporate insiders and outsiders, higher costs of diversion increase the return. European firm-level data lend support to these results. Further, in civil law countries an increase in the corporate tax rate has a positive impact on shareholder value, whereas in common law countries the corporate tax negatively affects shareholder value.

Keywords: corporate governance, corporate taxation

JEL Classification: G3, H25, H26

Suggested Citation

Krämer, Robert and Lipatov, Vilen, Opportunities to Divert, Firm Value, and Taxation: Theory and Evidence from European Firms (August 12, 2011). Available at SSRN: https://ssrn.com/abstract=1932606 or http://dx.doi.org/10.2139/ssrn.1932606

Robert Krämer

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Grüneburgplatz 1
Frankfurt am Main, D-60323
Germany

Vilen Lipatov (Contact Author)

Cornerstone Research ( email )

1000 El Camino Real
Menlo Park, CA 94025-4327
United States

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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