Measuring the Impact of Taxation on Investment and Financing Decisions
Ulrich Schreiber/Christoph Spengel/Lothar Lammersen
Effective tax rates are a useful tool for policy makers as well as for business managers who might demand condensed but sophisticated information on investment tax burdens. Our paper discusses the measurement of the effective tax rate on profitable investment, i.e., investment that generates an economic rent. Based on an approach presented by Devereux and Griffith, we develop a standard measure of the effective average tax rate. This measure is directly connected with the widely used effective marginal tax rate. The measure uses a comparison with the statutory tax rate to indicate whether or not an investment is tax advantaged.

Valuation of Defaultable Claims – A Survey
Marliese Uhrig-Homburg
The literature on default-claim pricing falls into three categories. Building on the classical Merton model, the structural approach models the dynamics of the asset value and assumes that default is triggered when the equity value reaches an exogenous asset level. In a second class of structural models, the firm itself derives a default boundary endogenously. Finally, in the reduced-form approach default occurs according to an exogenous hazard rate process. In this paper I survey the default-claim literature. I provide a general valuation framework for default-claim pricing. I then give an example designed to clarify the main difference between the structural and the reduced-form approach. For each model category I show how current pricing models fit into my general framework, describe the applicable papers in some detail, and discuss related extensions.

Sequential Investment and Time to Build**
Gunther Friedl
Real world investment decisions are generally made sequentially, over time. Management must consider the possibility of subsequent decisions like suspending a project when an initial investment decision is made. This consideration seems to be particularly important in the case of investments, which take a long time to build. In this paper, I analyze the impact of lags between the initial investment decision and the completion of the project. I also analyze in a dynamic setting under uncertainty the impact on the investment value of the option to suspend investment or operations and the investment threshold. I show that the standard net present value rule works well within my framework. This result contrasts with the main results in most of the real options literature. I use my model to value the length of permit procedures for locational decisions.

Costs and Benefits from Repricing Employee Stock Options
Barbara Pirchegger
A principal-agent model is used to analyze whether repricing stock option contracts can be beneficial for the contracting parties. A principal employs an agent and offers him an exogenously given contract that includes a fixed compensation payment as well as stock options. After the contract is signed, the agent performs two efforts that the principal cannot observe. As soon as the first effort is completed, both parties observe a signal that contains information about the final share price. At the end of the period the agent is paid according to his contract.

The signal is assumed to reveal information about either an unobservable state of nature or the agent‘s first effort. For both settings a commitment scenario and a renegotiation scenario are compared. The paper shows that if the signal contains information about the state of nature to occur the renegotiation setting might weakly dominate the commitment setting. However, if the signal is informative about the agent‘s first effort, the renegotiation setting turns out to be weakly dominated by the commitment setting.