Dhammika Dharmapala | University of Chicago (original) (raw)
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Papers by Dhammika Dharmapala
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SSRN Electronic Journal, 2003
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MPI Studies on Intellectual Property, Competition and Tax Law, 2008
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SSRN Electronic Journal, 2000
ABSTRACT Criminal law enforcement depends on the actions of public agents such as police officers... more ABSTRACT Criminal law enforcement depends on the actions of public agents such as police officers, but there is no standard economic model of police as public agents. We seek to remedy this deficiency by offering an agency model of police behavior. We begin by explaining why the standard contracting solutions are unlikely to work. Instead, we follow recent literature exploring intrinsic motivation and posit heterogeneity in the preferences of potential agents. Drawing on experimental evidence on punishment preferences (so-called “altruistic punishment”), in which subjects reveal a preference for punishing wrongdoers, our model identifies circumstances in which “punitive” individuals (with stronger-than-average punishment preferences) will self-select into law enforcement jobs that offer the opportunity to punish (or facilitate the punishment of) wrongdoers. Such “punitive” agents will accept a lower salary and be less likely to shirk, but create agency costs associated with their excessive zeal (relative to the public’s preferences) in searching, seizing, and punishing suspects. Under plausible assumptions, the public chooses to hire punitive police agents, while submitting them to monitoring by other agents (such as the judiciary) with average punishment preferences. Thus, two kinds of agents are better than one. We explore various implications for police shirking, corruption, and the content of the criminal procedure rights that the judiciary enforces.
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SSRN Electronic Journal, 2000
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SSRN Electronic Journal, 2000
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SSRN Electronic Journal, 2000
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SSRN Electronic Journal, 2000
ABSTRACT The phenomenon of cross-listing has attracted extensive scholarly attention in law and f... more ABSTRACT The phenomenon of cross-listing has attracted extensive scholarly attention in law and finance. The empirical literature has found a substantial cross-listing premium – i.e. higher share values for cross-listed firms relative to otherwise comparable non-cross-listed firms, and positive stock market reactions to the announcement of cross-listings. Existing scholarship proposes various theories that seek to explain this premium, with varying degrees of empirical support. This paper presents a new conceptual and empirical perspective on this topic, focusing on the division of the gains from cross-listing between controlling shareholders and minority shareholders. Our empirical findings suggest that the existing theories do not fully explain the premium and that an alternative or supplementary account of the cross-listing phenomenon may be more persuasive. The theories that have been proposed to explain the cross-listing premium – including finance-based theories that focus on increased liquidity, law-based theories of legal bonding through the stronger securities law and enforcement regime in the cross-listing jurisdiction, and theories of reputational bonding through market intermediaries – typically entail that there is a fundamental change in the legal or financial environment faced by the firm after cross-listing that leads to the premium. Taking these theories as our premise, we propose a strategy through which controlling shareholders can capture all of the cross-listing premium, rather than sharing part of it with minority shareholders. This involves the controller freezing out minority shareholders before announcing plans for cross-listing. The firm could then, if desired, issue shares (in both the home and cross-listing markets) to return the controller to her preferred level of ownership. This strategy – which can perhaps be analogized to feasting on Mardi Gras in anticipation of fasting during Lent – does not appear to have been previously explored in the cross-listing literature. We argue that, under virtually all of the existing theories, the failure to engage in this strategy would involve foregoing a straightforward arbitrage opportunity. For example, under the legal bonding hypothesis, the cross-listing premium is attributable to securities law constraints on minority expropriation following cross-listing. These future constraints (and hence the premium conferred by forward-looking markets) should be unaffected by pursuing the “Mardi Gras” strategy before cross-listing under the legal bonding hypothesis. Of course, the scope for such a strategy might be limited if conducted in a jurisdiction with stronger corporate law constraints in place against freeze-outs. However, in jurisdictions with weaker corporate law we do not expect controlling shareholders to face significant constraints against this strategy – and many firms that cross-list come from jurisdictions with such weaker constraints. Another limit might be credit constraints or other financial market imperfections, but even so we would still expect to observe freeze-outs prior to cross-listing to some significant extent. We test the prevalence of freeze-outs prior to cross-listing using data on Indian firms that cross-list abroad. Indian data is chosen because India is a significant source of cross-listings, because of the availability of detailed data on minority share ownership, and because controlling shareholders are unlikely to be prevented by Indian corporate law from engaging in the proposed strategy (or have fairly straightforward ways to avoid any constraints). However, the lessons from this analysis are likely to be more broadly applicable given that most countries have weaker constraints on freeze outs. We obtain detailed ownership data from the Prowess database for 167 Indian firms that have cross-listed abroad since 2001. This database reports the names and ownership stakes of all shareholders who own at least 1% of the firm’s shares in each quarter over the period 2001:Q1 to 2010:Q4. Using this data, we examine changes in ownership patterns for firms in the five quarters preceding cross-listing. In particular, we analyze aggregate minority and controlling shareholder ownership at the firm-quarter level, constructing a panel dataset that consists of over 5000 firm-quarter observations on these 167 firms. A regression analysis that controls for firm and quarter fixed effects finds no statistically significant reduction in aggregate minority share ownership in the five quarters preceding cross-listing. Moreover, the coefficients are very small in magnitude, as are those for aggregate controlling shareholder ownership. We also analyze ownership changes at the level of individual shareholders, using a regression model that controls for shareholder and quarter fixed effects. Again, there is no evidence consistent with freeze-outs, and the effects are generally small in magnitude. We also check by hand for changes in the…
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SSRN Electronic Journal, 2000
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SSRN Electronic Journal, 2000
ABSTRACT This paper reviews recent evidence analyzing the link between earnings management and co... more ABSTRACT This paper reviews recent evidence analyzing the link between earnings management and corporate tax avoidance and considers the implications for how policymakers should evaluate the financial reporting environment facing firms. A real-world tax shelter is dissected to illustrate how tax shelter products enable managers to manipulate reported earnings. A stylized example is developed that generalizes this view of corporate tax avoidance and empirical evidence consistent with this view is discussed. This view of corporate tax avoidance implies that shareholders and policymakers should question the rationale for distinct financial reports and that greater book-tax alignment may have mutually beneficial effects for investors and tax authorities.
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SSRN Electronic Journal, 2000
ABSTRACT How do the tax system and corporate governance arrangements interact? This chapter begin... more ABSTRACT How do the tax system and corporate governance arrangements interact? This chapter begins by reviewing an emerging literature that explores how agency problems create such interactions and provides evidence on their importance. This literature has neglected how taxation can interact with the various mechanisms that have arisen to ameliorate the corporate governance problem, such as concentrated ownership, accounting and information systems, high-powered incentives, financing choices, payout policy, and the market for corporate control. The remainder of the chapter outlines potentially fruitful areas for future research into how these mechanisms may respond to the tax system.
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SSRN Electronic Journal, 2000
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SSRN Electronic Journal, 2000
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SSRN Electronic Journal, 2003
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MPI Studies on Intellectual Property, Competition and Tax Law, 2008
Bookmarks Related papers MentionsView impact
Bookmarks Related papers MentionsView impact
Bookmarks Related papers MentionsView impact
Bookmarks Related papers MentionsView impact
Bookmarks Related papers MentionsView impact
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SSRN Electronic Journal, 2000
ABSTRACT Criminal law enforcement depends on the actions of public agents such as police officers... more ABSTRACT Criminal law enforcement depends on the actions of public agents such as police officers, but there is no standard economic model of police as public agents. We seek to remedy this deficiency by offering an agency model of police behavior. We begin by explaining why the standard contracting solutions are unlikely to work. Instead, we follow recent literature exploring intrinsic motivation and posit heterogeneity in the preferences of potential agents. Drawing on experimental evidence on punishment preferences (so-called “altruistic punishment”), in which subjects reveal a preference for punishing wrongdoers, our model identifies circumstances in which “punitive” individuals (with stronger-than-average punishment preferences) will self-select into law enforcement jobs that offer the opportunity to punish (or facilitate the punishment of) wrongdoers. Such “punitive” agents will accept a lower salary and be less likely to shirk, but create agency costs associated with their excessive zeal (relative to the public’s preferences) in searching, seizing, and punishing suspects. Under plausible assumptions, the public chooses to hire punitive police agents, while submitting them to monitoring by other agents (such as the judiciary) with average punishment preferences. Thus, two kinds of agents are better than one. We explore various implications for police shirking, corruption, and the content of the criminal procedure rights that the judiciary enforces.
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2000
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2000
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2000
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2000
ABSTRACT The phenomenon of cross-listing has attracted extensive scholarly attention in law and f... more ABSTRACT The phenomenon of cross-listing has attracted extensive scholarly attention in law and finance. The empirical literature has found a substantial cross-listing premium – i.e. higher share values for cross-listed firms relative to otherwise comparable non-cross-listed firms, and positive stock market reactions to the announcement of cross-listings. Existing scholarship proposes various theories that seek to explain this premium, with varying degrees of empirical support. This paper presents a new conceptual and empirical perspective on this topic, focusing on the division of the gains from cross-listing between controlling shareholders and minority shareholders. Our empirical findings suggest that the existing theories do not fully explain the premium and that an alternative or supplementary account of the cross-listing phenomenon may be more persuasive. The theories that have been proposed to explain the cross-listing premium – including finance-based theories that focus on increased liquidity, law-based theories of legal bonding through the stronger securities law and enforcement regime in the cross-listing jurisdiction, and theories of reputational bonding through market intermediaries – typically entail that there is a fundamental change in the legal or financial environment faced by the firm after cross-listing that leads to the premium. Taking these theories as our premise, we propose a strategy through which controlling shareholders can capture all of the cross-listing premium, rather than sharing part of it with minority shareholders. This involves the controller freezing out minority shareholders before announcing plans for cross-listing. The firm could then, if desired, issue shares (in both the home and cross-listing markets) to return the controller to her preferred level of ownership. This strategy – which can perhaps be analogized to feasting on Mardi Gras in anticipation of fasting during Lent – does not appear to have been previously explored in the cross-listing literature. We argue that, under virtually all of the existing theories, the failure to engage in this strategy would involve foregoing a straightforward arbitrage opportunity. For example, under the legal bonding hypothesis, the cross-listing premium is attributable to securities law constraints on minority expropriation following cross-listing. These future constraints (and hence the premium conferred by forward-looking markets) should be unaffected by pursuing the “Mardi Gras” strategy before cross-listing under the legal bonding hypothesis. Of course, the scope for such a strategy might be limited if conducted in a jurisdiction with stronger corporate law constraints in place against freeze-outs. However, in jurisdictions with weaker corporate law we do not expect controlling shareholders to face significant constraints against this strategy – and many firms that cross-list come from jurisdictions with such weaker constraints. Another limit might be credit constraints or other financial market imperfections, but even so we would still expect to observe freeze-outs prior to cross-listing to some significant extent. We test the prevalence of freeze-outs prior to cross-listing using data on Indian firms that cross-list abroad. Indian data is chosen because India is a significant source of cross-listings, because of the availability of detailed data on minority share ownership, and because controlling shareholders are unlikely to be prevented by Indian corporate law from engaging in the proposed strategy (or have fairly straightforward ways to avoid any constraints). However, the lessons from this analysis are likely to be more broadly applicable given that most countries have weaker constraints on freeze outs. We obtain detailed ownership data from the Prowess database for 167 Indian firms that have cross-listed abroad since 2001. This database reports the names and ownership stakes of all shareholders who own at least 1% of the firm’s shares in each quarter over the period 2001:Q1 to 2010:Q4. Using this data, we examine changes in ownership patterns for firms in the five quarters preceding cross-listing. In particular, we analyze aggregate minority and controlling shareholder ownership at the firm-quarter level, constructing a panel dataset that consists of over 5000 firm-quarter observations on these 167 firms. A regression analysis that controls for firm and quarter fixed effects finds no statistically significant reduction in aggregate minority share ownership in the five quarters preceding cross-listing. Moreover, the coefficients are very small in magnitude, as are those for aggregate controlling shareholder ownership. We also analyze ownership changes at the level of individual shareholders, using a regression model that controls for shareholder and quarter fixed effects. Again, there is no evidence consistent with freeze-outs, and the effects are generally small in magnitude. We also check by hand for changes in the…
Bookmarks Related papers MentionsView impact
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2000
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2000
ABSTRACT This paper reviews recent evidence analyzing the link between earnings management and co... more ABSTRACT This paper reviews recent evidence analyzing the link between earnings management and corporate tax avoidance and considers the implications for how policymakers should evaluate the financial reporting environment facing firms. A real-world tax shelter is dissected to illustrate how tax shelter products enable managers to manipulate reported earnings. A stylized example is developed that generalizes this view of corporate tax avoidance and empirical evidence consistent with this view is discussed. This view of corporate tax avoidance implies that shareholders and policymakers should question the rationale for distinct financial reports and that greater book-tax alignment may have mutually beneficial effects for investors and tax authorities.
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2000
ABSTRACT How do the tax system and corporate governance arrangements interact? This chapter begin... more ABSTRACT How do the tax system and corporate governance arrangements interact? This chapter begins by reviewing an emerging literature that explores how agency problems create such interactions and provides evidence on their importance. This literature has neglected how taxation can interact with the various mechanisms that have arisen to ameliorate the corporate governance problem, such as concentrated ownership, accounting and information systems, high-powered incentives, financing choices, payout policy, and the market for corporate control. The remainder of the chapter outlines potentially fruitful areas for future research into how these mechanisms may respond to the tax system.
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2000
Bookmarks Related papers MentionsView impact
SSRN Electronic Journal, 2000
Bookmarks Related papers MentionsView impact
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