This paper analyzes the links between corporate tax avoidance, the growth of high-powered incentives for managers, and the structure of corporate governance. We develop and test a simple model that highlights the role of complementarities between tax sheltering and managerial diversion in determining how high-powered incentives influence tax sheltering decisions. The model generates the testable hypothesis that firm governance characteristics determine how incentive compensation changes sheltering decisions. In order to test the model, we construct an empirical measure of corporate tax avoidance-the component of the book-tax gap not attributable to accounting accruals-and investigate the link between this measure of tax avoidance and incentive compensation. We find that, for the full sample of firms, increases in incentive compensation tend to reduce the level of tax sheltering, suggesting a complementary relationship between diversion and sheltering. As predicted by the model, the relationship between incentive compensation and tax sheltering is a function of a firm's corporate governance. Our results may help explain the growing cross-sectional variation among firms in their levels of tax avoidance, the "undersheltering puzzle," and why large book-tax gaps are associated with subsequent negative abnormal returns.

Do corporate tax avoidance activities advance shareholder interests? This paper tests alternative theories of corporate tax avoidance using unexplained differences between income reported to capital markets and to tax authorities. OLS estimates indicate that the effect of tax avoidance on firm value is a function of firm governance, as predicted by an agency perspective on corporate tax avoidance. Instrumental variables estimates based on exogenous changes in tax regulations yield larger overall effects and reinforce the basic result, as do several robustness checks. The results suggest that the simple view of corporate tax avoidance as a transfer of resources from the state to shareholders is incomplete given the agency problems characterizing shareholder-manager relations. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

This paper examines the impact of local tax rates and capital market conditions on the level and composition of borrowing by foreign affiliates of American multinational corporations. The evidence indicates that 10 percent higher local tax rates are associated with 2.8 percent higher debt/asset ratios of American-owned affiliates, and that borrowing from related parties is particularly sensitive to tax rates. Borrowing by American affiliates responds to local inflation and political risks, and is more costly in countries with underdeveloped capital markets and those providing weak legal protections for creditors. Affiliates in environments where external borrowing is costly borrow less from unrelated parties: one percent higher interest rates are associated with 1.4 to 2.0 percent less external debt as a fraction of assets. Instrumental variables analysis reveals that affiliates substitute loans from parent companies for between half and three quarters of the reduced borrowing from unrelated parties stemming from adverse local capital market conditions. These patterns suggest that multinational firms are able to structure their finances in response to tax and capital market conditions, thereby creating opportunities not available to many of their local competitors. IntroductionTo what extent does corporate borrowing increase due to the tax deductibility of interest expenses and decline in response to costs imposed by capital market underdevelopment or unfavorable legal systems? Do firms use internal capital markets to substitute for external finance when the latter is costly, and if so, how extensive is such substitution? Empirical attempts to answer these fundamental questions face significant challenges. Limited variation in tax incentives within countries makes it difficult to identify the effects of taxes, and detailed information on the workings of internal capital markets is scarce. Recent efforts using cross-country samples exploit the rich variation that international comparisons offer, but frequently face problems associated with nonstandardized measurement across countries and limited statistical power due to small sample sizes.Cross-country studies of capital structure commonly ignore the many wrinkles associated with multinational firms. These firms face differing tax incentives and legal regimes around the world, making it possible to identify the impact of these factors on financing choices. Analysis of the behavior of multinational firms promises clean estimates of the sensitivity of capital structure choice to tax incentives, an understanding of the mechanisms by which weak capital markets alter financing choices, and insight into the ways in which internal capital markets can facilitate tax minimization and provide an alternate financing source when external financing is most costly.This paper analyzes determinants of the capital structures of foreign affiliates of U.S.multinational firms. The use of confidential affiliate-level data makes it possible to distinguish the behavior of fore...

We introduce a new large-scale video dataset designed to assess the performance of diverse visual event recognition algorithms with a focus on continuous visual event recognition (CVER) in outdoor areas with wide coverage. Previous datasets for action recognition are unrealistic for real-world surveillance because they consist of short clips showing one action by one individual [15,8]. Datasets have been developed for movies [11] and sports [12], but, these actions and scene conditions do not apply effectively to surveillance videos. Our dataset consists of many outdoor scenes with actions occurring naturally by non-actors in continuously captured videos of the real world. The dataset includes large numbers of instances for 23 event types distributed throughout 29 hours of video. This data is accompanied by detailed annotations which include both moving object tracks and event examples, which will provide solid basis for large-scale evaluation. Additionally, we propose different types of evaluation modes for visual recognition tasks and evaluation metrics along with our preliminary experimental results. We believe that this dataset will stimulate diverse aspects of computer vision research and help us to advance the CVER tasks in the years ahead.

This paper analyzes the links between corporate tax avoidance, the growth of high-powered incentives for managers, and the structure of corporate governance. We develop and test a simple model that highlights the role of complementarities between tax sheltering and managerial diversion in determining how high-powered incentives influence tax sheltering decisions. The model generates the testable hypothesis that firm governance characteristics determine how incentive compensation changes sheltering decisions. In order to test the model, we construct an empirical measure of corporate tax avoidance-the component of the book-tax gap not attributable to accounting accruals-and investigate the link between this measure of tax avoidance and incentive compensation. We find that, for the full sample of firms, increases in incentive compensation tend to reduce the level of tax sheltering, suggesting a complementary relationship between diversion and sheltering. As predicted by the model, the relationship between incentive compensation and tax sheltering is a function of a firm's corporate governance. Our results may help explain the growing cross-sectional variation among firms in their levels of tax avoidance, the "undersheltering puzzle," and why large book-tax gaps are associated with subsequent negative abnormal returns.