Search results
1 – 10 of over 92000Enrico Supino and Maurizio Marano
This article explores the value creation process from player sales in football to understand if the related capital gains correspond to significant increases in the stock value of…
Abstract
Purpose
This article explores the value creation process from player sales in football to understand if the related capital gains correspond to significant increases in the stock value of selling companies. In addition, it aims to detect any potential drivers for higher (or slower) abnormal stock returns.
Design/methodology/approach
The authors analyze all the capital gains of the Italian and Portuguese listed football companies (the only ones for which, based on their annual reports, it was possible to trace the net book value for each player sold and, consequently, if any, the related capital gain) from 2012 to 2020 and use event study analysis to calculate the abnormal returns of the football companies' stocks. Moreover, the authors use a multiple linear regression model to identify the factors affecting investors' reactions and value creation process intensity.
Findings
The results show that, on average, the capital gains from player transfers in football are positive income components and produce statistically significant higher abnormal returns. In addition, the authors identified some relevant drivers related to their intensity which could guide the choices of corporate executives regarding future disposals of the multi-year performance rights of players in the roster.
Research limitations/implications
This study considers only Italian and Portuguese football listed companies. It would be helpful to consider some of the companies from other countries which are also outstanding from the sports perspective, but, in practice, it was not possible due to the impossibility to trace the net book value of the single footballers sold in those clubs' public financial disclosure.
Practical implications
The value relevance of the capital gains from player trading activities should increase their importance, creating cascade effects on several activities generating value for football clubs (youth sector management, player scouting, technical improvement of the players). In addition, financial data show that the capital gains from player transfers are a basic income of European football clubs nowadays. Their executives consider these operations recurrent and continually search for more valuable transfers. Hence, it is reasonable to think that they (will) choose the players to sell considering both sports and financial aspects.
Originality/value
To the best of the authors' knowledge, this is the first study exploring the effects of capital gains from player trading activities on professional football clubs' stock value. The results obtained are even more relevant if one considers the importance these income components have in the profit formula of professional football clubs nowadays, also because of the negative repercussions caused by the recent COVID-19 pandemic.
Details
Keywords
Despite the South African legislature’s intention to introduce capital gains tax (CGT) as a simple and clear tax, it is an extremely complex tax. Several provisions of both the…
Abstract
Despite the South African legislature’s intention to introduce capital gains tax (CGT) as a simple and clear tax, it is an extremely complex tax. Several provisions of both the Eighth Schedule to the Income Tax Act 58 of 1962 and the Act itself have to be taken into account in determining whether a taxable capital gain or an assessed capital loss has arisen during the year of assessment. The application of these principles is often surrounded by uncertainty. Hence, the purpose of this article is not only to provide an overview of some of the different provisions that have to be taken into account and the interaction between them, but also to highlight some of the problems arising from the application of the principles themselves.
Details
Keywords
In Portugal, between 1989 and 2010, capital gains from corporate shares were exempted, while gains from other instruments, like limited liability companies (LLC) equity stakes…
Abstract
Purpose
In Portugal, between 1989 and 2010, capital gains from corporate shares were exempted, while gains from other instruments, like limited liability companies (LLC) equity stakes, were taxed. Inevitably, this non-neutral tax treatment originated a notorious tax arbitrage, consisting in the transformation of the legal status of a LLC into a corporation, the subsequent share sale and tax exemption. In tax litigation, many arbitration rulings were delivered, with widely divergent decisions. The purpose of this paper, using a blend of the legal research method and case analysis, is to discuss three research questions. Should the general anti-abuse clause (GAAC) be applied to this tax planning operation? Why the divergence in arbitration rulings? Is this anomalous arbitration outcome because of the wording the GAAC and its complexity or, contrarily, does it emerge from the disconnection between the set of rules governing capital gains taxation and the legislative intent that is behind such rules?
Design/methodology/approach
The methodology used in this paper is based on a mix of the legal research method and case analysis. In the case of legal research, a hermeneutic approach – meaning that documents, texts and their interpretation can produce important fruits to the development of the field – is a tested and fruitful approach. Besides being a hermeneutic discipline, it is an argumentative one. By exposing arguments that confirm or deny particular solutions, legal research (e.g. in criminal, business or administrative law) can influence better legislative choices by political actors. Advantages of case analysis include lessons learned from observation. The author discusses if the application of the GAAC to an arrangement that originated a tax exemption can be validated by the usual interpretative lines that doctrine sustains should be observed when a GAAC is used to void legal schemes. The pros and cons of tax arbitration are also highlighted.
Findings
The conclusion of this paper is that the GAAC is not the crux of the problem. Instead, a contradictory or, at least, disconnected relation between the expressed intent of legislators and the wording of capital gains tax clauses is, in our view, the main reason for such divergent arbitration rulings on the same issue.
Practical implications
The author believes that the paper is a contribution to the literature, given the global use of anti-abuse clauses and the interpretative complexities they originate. Moreover, the analysis in this paper is carried out in a legal setting where a disconnection is detectable between the expressed legislative intent and the legal drafting of personal income tax rules related to the exemption of capital gains. Studying the complexity added by this feature of the Portuguese legislation serves as a reminder of the importance of careful and well-crafted wording to achieve consistent court outcomes.
Originality/value
The paper has value to governments, tax authorities and tax managers, given the ever-increasing use of anti-abuse clauses in many countries, and the potential use of arbitration in similar settings.
Details
Keywords
This paper provides evidence suggesting capital gains tax affects stock returns and trading volume. The Canadian federal government budget of May 23, 1985 provided individual…
Abstract
This paper provides evidence suggesting capital gains tax affects stock returns and trading volume. The Canadian federal government budget of May 23, 1985 provided individual taxpayers with a cumulative tax exemption for capital gains, up to a lifetime limit of $500,000. The empirical results, using daily stock return and trading volume data from the Toronto Stock Exchange, show that stock prices decreased three days before the announcement of the lifetime capital gains exemption. The empirical results also show that stock trading volume increased two days and four days before the announcement and five days following the announcement. These results are consistent with the argument that the capital gains tax constrained some individual shareholders from selling appreciated shares (often called “lock‐in effect”).
Details
Keywords
Peter Huaiyu Chen, Sheen X. Liu and Chunchi Wu
Current US tax laws provide investors an incentive to time the sales of their bonds to minimize tax liability. This gives rise to a tax-timing option that affects bond value. In…
Abstract
Current US tax laws provide investors an incentive to time the sales of their bonds to minimize tax liability. This gives rise to a tax-timing option that affects bond value. In reality, corporate bond investors’ tax-timing strategy is complicated by risk of default. Existing term structure models have ignored the effect of the tax-timing option, and how much corporate bond value is due to the tax-timing option is unknown. In this chapter, we assess the effects of taxes and stochastic interest rates on the timing option value and equilibrium price of corporate bonds by considering discount and premium amortization, multiple trading dates, transaction costs, and changes in the level and volatility of interest rates. We find that the value of the tax-timing option accounts for a substantial proportion of corporate bond price even when interest rate volatility is low. Ignoring the timing option value results in overestimation of credit spread, and underestimation of default probability and the marginal investor’s income tax rate. These estimation biases generally increase with bond maturity and credit risk.
Details
Keywords
Alvin Cheng, Keith Hooper and Howard Davey
This paper discusses the designing of a capital gains tax for New Zealand. The essential question is not why such a system is needed but what type of system should be implemented…
Abstract
This paper discusses the designing of a capital gains tax for New Zealand. The essential question is not why such a system is needed but what type of system should be implemented. The paper ignores the political discussion of whether such a tax is necessary and concentrates on design and implementation issues. Drawing from other tax jurisdictions, chiefly the United Kingdom and Australia, this article discusses the merits of tapering relief; indexation (now frozen in Australia); specific exemptions (e.g. owner occupied property); and of re‐defining capital assets into discrete categories which may be treated differently. The aim of the study is to open up the issue of capital gains for informed discussion: how such a tax should be administered, and the possibilities and likely difficulties involved in implementing such a tax.
The purpose of this paper is to show how recent capital gains affect ex‐dividend stock pricing. Traditional models assume that investors are motivated to sell a stock before its…
Abstract
Purpose
The purpose of this paper is to show how recent capital gains affect ex‐dividend stock pricing. Traditional models assume that investors are motivated to sell a stock before its ex‐date to avoid paying higher taxes on dividends. However, if a stock has appreciated significantly, stockholders have an offsetting incentive to delay the realization of capital gains by continuing to hold the stock in spite of the higher dividend tax rate.
Design/methodology/approach
This paper develops a model showing that ex‐dividend price drops should be greater in the presence of larger accrued capital gains. The model was tested by regressing ex‐day pricing measures on the relative size of the recently accrued gain, along with other control variables.
Findings
Empirical tests confirm that accrued gains reduce the magnitude of the ex‐day effect, increasing the price drop ratio (ΔP/D) and reducing ex‐day returns. Also documented was that ex‐day price drops are larger for stocks that have recently experienced positive gains, that the observed effect of recent price performance is stronger for higher‐yield stocks, and that share turnover is usually lower for stocks with greater gains.
Research limitations/implications
This paper's findings suggest that the results of existing empirical investigations of ex‐day pricing should be interpreted with some caution, and that future studies should control for gains that occur prior to the ex‐date.
Originality/value
While the tax clientele explanation of ex‐day pricing has been investigated extensively, this is the first study to show how accrued gains and losses impact ex‐dividend price changes.
Details
Keywords
C. West and P. Surtees
This article comprises an attempt to find a practical method of applying the decision in the case of the Commissioner for the South African Revenue Service v Woulidge (63 SATC…
Abstract
This article comprises an attempt to find a practical method of applying the decision in the case of the Commissioner for the South African Revenue Service v Woulidge (63 SATC 483) (‘Woulidge’) to limit the application of section 7(3) of the Income Tax Act (‘the Act’). It is proposed in this article that Woulidge would also apply to the provisions of section 7(5) and paragraphs 69 and 70 of the Eighth Schedule to the Act. The approach proposed is illustrated by means of examples. The approach adopted by the Commissioner for the South African Revenue Service is also discussed. A conclusion is drawn regarding the practicality of applying Woulidge in the light of the examples.
Details
Keywords
A tax based on land value is in many ways ideal, but many economists dismiss it by assuming it could not raise enough revenue. Standard sources of data omit much of the potential…
Abstract
Purpose
A tax based on land value is in many ways ideal, but many economists dismiss it by assuming it could not raise enough revenue. Standard sources of data omit much of the potential tax base, and undervalue what they do measure. The purpose of this paper is to present more comprehensive and accurate measures of land rents and values, and several modes of raising revenues from them besides the conventional property tax.
Design/methodology/approach
The paper identifies 16 elements of land's taxable capacity that received authorities either trivialize or omit. These 16 elements come in four groups.
Findings
In Group A, Elements 1‐4 correct for the downward bias in standard sources. In Group B, Elements 5‐10 broaden the concepts of land and rent beyond the conventional narrow perception, while Elements 11‐12 estimate rents to be gained by abating other kinds of taxes. In Group C, Elements 13‐14 explain how using the land tax, since it has no excess burden, uncaps feasible tax rates. In Group D, Elements 15‐16 define some moot possibilities that may warrant further exploration.
Originality/value
This paper shows how previous estimates of rent and land values have been narrowly limited to a fraction of the whole, thus giving a false impression that the tax capacity is low. The paper adds 14 elements to the traditional narrow “single tax” base, plus two moot elements advanced for future consideration. Any one of these 16 elements indicates a much higher land tax base than economists commonly recognize today. Taken together they are overwhelming, and cast an entirely new light on this subject.
Details
Keywords
This paper aims to examine the interaction between fair-value accounting, asset sales and banks’ lending in booms and busts. Throughout, the author uses “fair value” and…
Abstract
Purpose
This paper aims to examine the interaction between fair-value accounting, asset sales and banks’ lending in booms and busts. Throughout, the author uses “fair value” and “mark-to-market” interchangeably, to denote an accounting regime where changes in the prices of banks’ assets affect regulatory capital. “Historic-cost accounting” has been used in the paper to denote an accounting regime where changes in asset prices do not affect regulatory capital.
Design/methodology/approach
The author built a model that examines how the accounting regime affects banks’ incentives to sell assets and how the impact of the accounting regime on asset sales affects lending.
Findings
In a bust, fair value strengthens banks’ incentives to sell assets. The resulting increase in sales increases banks’ lending capacity. Consequently, lending can be higher under fair value. Conversely, in a boom, historic cost strengthens banks incentives to sell assets. The resulting increase in sales increases banks’ lending capacity. Hence, lending can be higher under historic cost.
Originality/value
This paper identifies a new channel through which the accounting regime could affect lending. The accounting regime can affect banks’ incentives to sell assets. The resulting difference in sales can affect banks’ ability to make new loans. Hence, in a boom, although banks book mark-to-market gains under fair value, asset sales could be higher under historic cost. Lending, thus, could be higher under historic cost. Conversely, in a bust, although banks book mark-to-market losses under fair value, sales could be higher under fair value. Lending, thus, could be higher under fair value.
Details