THE DEGREE OF INTEGRATING CORPORATE AND CAPITAL GAINS TAX INTO INCOME TAX AND ITS IMPACT ON INVESTMENT DECISIONS
Caren Sureth/Dirk Langeleh
We investigate the influence of different systems of current income and capital gains taxation on investors’ decisions to either invest in corporate shares or to invest funds on the capital market. We analyze three basic tax systems. We show that even under certainty, we cannot derive general analytical solutions to the investment problem for different categories of tax regimes. Using a growth model, under restrictive assumptions we find that the shareholder relief system results in more severe distortions than does the full imputation system. In an attempt to prove this finding in a more realistic setting with uncertainty, we use Monte Carlo simulation for random rates of return and random income tax rates. We find that tax-induced uncertainty and distortion is often higher under a shareholder relief system than under full imputation, but find opposite results for low income tax rates if either the retention rate is low or income tax rates are subject to high degrees of uncertainty. These results contradict the traditional view of full imputation and suggest that under uncertainty, full imputation may cause more severe distortions than would shareholder relief, especially if personal income tax rates are low and volatile. This result is important, because simulated low income tax rates correspond to empirical rates. Furthermore, the simulation clarifies the trade-off between opposing effects, i.e., tax and interest-rate effects, and the overwhelming impact of capital gains taxation. Apart from tax parameters, we identify the dividend rate and the point in time of selling the shares as important value drivers.
pp. 310 - 339
PROMOTORS OR CHAMPIONS? PROS AND CONS OF ROLE SPECIALISATION FOR ECONOMIC PROCESS
Katja Rost/Katharina Hölzle/Hans-Georg Gemünden
According to the Great-Man Theory, the creation of something new used to be accredited solely to one outstanding individual: the champion. This prevailing notion in A nglo- American research was first challenged by Witte (1973), who concluded that an innovation cannot be a one-man decision, since the creation of something new usually involves highly complex and multi-person decision processes. Witte’s model credits the success not to one all-around individual, but to the cooperation of several different specialized persons (so called promotors). Even though the Great-Man Theory is still leading the discussion, the idea of specialized promotors should not be underestimated. I n this article we discuss the circumstances under which specialized promotors or generalized champions are better suited for economic progress. We find extensive empirical proof for both roles.
pp. 340 - 363
PEER INFLUENCE IN NETWORK MARKETS: AN EMPIRICAL INVESTIGATION
Jörn H. Block/Philipp Köllinger
We analyze the effect of peer influence on the diffusion of an innovative network good. We argue that the adopters of a network good have an incentive to convince others to purchase the same product because their utility depends on the number of other users. This peer-effect influences individuals’ adoption decisions alongside the more familiar installed-base-effect, based on the individual’s own insight that a larger number of installed units increases his/her benefit of adopting. We test empirically which effect dominates with Instant Messaging, an innovative network good. We arrive at surprising results with far-reaching implications for research and management. The diffusion of Instant Messaging was to a large extent driven by the peer-effect, but the installedbase- effect seemed to play no role. We perform our estimation with a discrete time hazard rate model that controls for unobserved heterogeneity.
pp. 364 - 386
JUSTIFYING THE ORIGIN OF REAL OPTIONS AND THEIR DIFFICULT EVALUATION IN STRATEGIC MANAGEMENT
Thierry Burger-Helmchen
I explore and review the introduction of real options in strategic management studies. My aim is to contribute to a better understanding of the origin of the real options. By distinguishing between shadow and real options and implementing entrepreneurship in the traditional option valuation framework, I obtain a more exhaustive representation of the strategic decision processes in the firm. I explain the creation of a real option as an entrepreneurial process, one which transforms inventive ideas into profitable innovation. This constitutes a step to-ward an option-based theory of the firm by describing the emergence of a firm's options and the strategic building of new competencies for exercising these options. In addition, this approach offers a parallel understanding of why the real options theory is less often used in practice than in theory.
pp. 387 - 406
