Law, Organizational Form and Taxes: A Stakeholder Perspective

35 Pages Posted: 6 Mar 2005

See all articles by Kose John

Kose John

New York University (NYU) - Department of Finance

Vinay B. Nair

University of Pennsylvania - Finance Department

Lemma W. Senbet

University of Maryland - Robert H. Smith School of Business

Date Written: November 2005

Abstract

In a setting where corporate investment imposes positive externalties, the social impact of corporations depends on the sharing rule between the owners of the corporation and non-financial claimants. We examine the role of law and organizational form in altering the sharing rule. Since the legal regime affects the extent to which corporate owners are held responsible for the negative externalties they impose, unlimited liability may discourage investment in strong legal regimes. Limited liability, however, might be accompanied by excessive investment. We highlight the role of the government in altering the sharing rule due its claim through corporate taxation and investigate the relation between law and corporate taxation. We find that corporate tax rates are are a decreasing function of legal strength. Finally, we document supporting evidence using cross-country data.

Keywords: Corporate Taxation, Corporate Liability, Organizational Design, Law

Suggested Citation

John, Kose and Nair, Vinay B. and Senbet, Lemma W., Law, Organizational Form and Taxes: A Stakeholder Perspective (November 2005). Available at SSRN: https://ssrn.com/abstract=676987 or http://dx.doi.org/10.2139/ssrn.676987

Kose John (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Vinay B. Nair

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0004 (Phone)
215-898-6200 (Fax)

Lemma W. Senbet

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2242 (Phone)
301-405-0359 (Fax)

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