(Press-News.org) A recent study of more than 2,000 companies finds that corporations feeling the pinch of financial constraints can benefit significantly from taking a more aggressive stance in their tax planning strategies. One takeaway of the finding is that tax authorities should look closely at the activities of companies facing financial constraints to make sure their tax activities don't become too aggressive.
Financial constraints aren't unusual and occur when a company can't afford to fund a project that would increase its value. Sometimes the constraints are caused by an external event - like a pandemic - that leaves companies with less income than they were anticipating. Sometimes the factors causing a constraint are specific to a single company, such as corporate mismanagement.
"Business researchers are interested in how companies respond to sudden changes in their financial constraints," says Nathan Goldman, co-author of the study and an assistant professor of accounting in the Poole College of Management at North Carolina State University. "But it's difficult to separate various confounding variables from the financial constraints that companies are facing. However, my co-authors and I realized that the Pension Protection Act of 2006 (PPA) gave us a great opportunity to examine financial constraints."
The PPA increased pension funding requirements by almost 500% for all companies that had defined-benefit pension plans. For example, before the PPA, if a company had $400 million in pension obligations, and $100 million in pension assets, it would have 30 years to fund 90% of its obligations. In other words, it could set aside an additional $9 million per year for 30 years. But the PPA changed that, and the same company would have been required to fund 100% of its obligations within seven years - or an additional $43 million per year.
"The PPA imposed new demands on the financial resources of these 'pension firms' - and that means many were suddenly facing financial constraints," Goldman says.
To assess the impact of these financial constraints, the researchers looked at data from 2,647 publicly traded companies: 730 pension firms and 1,907 companies that did not provide defined-benefit pension plans to their employees.
"We found that pension firms were able to recoup 19% of their investment shortfall by modifying their tax strategies," Goldman says. "That is a significant amount of money."
The benefits of the tax strategies can vary in terms of whether they are one-time benefits - such as R&D expenses - or recurring savings - such as relocating operations to locations with lower taxes.
Ultimately, the researchers found that there were three key takeaway messages for the business community.
"One: firms facing financing constraints should consider turning to tax planning as a way of generating capital without increasing debt or equity," Goldman says. "Two: tax planning alone cannot solve liquidity demands. However, the average firm generated a significant amount of cash to offset investment that would otherwise be lost. And, lastly, the taxing authority should more carefully scrutinize tax positions of financially constrained firms - since these firms are more likely to be increasing the aggressiveness of their deductions, and thus have a higher likelihood of being overturned."
INFORMATION:
The paper, "Do Financing Constraints lead to Incremental Tax Planning? Evidence from the Pension Protection Act of 2006," appears in the journal Contemporary Accounting Research. The paper was co-authored by John Campbell of the University of Georgia and Bin Li of the University of Houston.
Manufacturing - Mighty Mo
Oak Ridge National Laboratory scientists proved molybdenum titanium carbide, a refractory metal alloy that can withstand extreme temperature environments, can also be crack free and dense when produced with electron beam powder bed fusion. Their finding indicates the material's viability in additive manufacturing.
Molybdenum, or Mo, as well as associated alloys, are difficult to process through traditional manufacturing because of their high melting temperature, reactivity with oxygen and brittleness.
To address these shortcomings, the team formed a Mo metal matrix composite by mixing molybdenum and titanium carbide powders and used an electron beam to melt the ...
Piping plover breeding groups in the Northern Great Plains are notably connected through movements between habitats and show lower reproductive rates than previously thought, END ...
A comprehensive assessment of 12 different strategies for reducing beef production emissions worldwide found that industry can reduce greenhouse gas (GHG) emissions by as much as 50% in certain regions, with the most potential in the United States and Brazil. The study, " END ...
In 2018, Kang-Kuen Ni and her lab earned the cover of Science with an impressive feat: They took two individual atoms, a sodium and a cesium, and forged them into a single dipolar molecule, sodium cesium.
Sodium and cesium normally ignore each other in the wild; but in the Ni lab's carefully calibrated vacuum chamber, she and her team captured each atom using lasers and then forced them to react, a capability that gifted scientists with a new method to study one of the most basic and ubiquitous processes on Earth: the formation of a chemical bond. With Ni's invention, scientists could not only discover more about our chemical underpinnings, they could start creating ...
Syracuse, N.Y. - Emergency medical service (EMS) workers face triple the risk for significant mental health problems such as depression and posttraumatic stress disorder compared to the general population, according to a recently published study by researchers from Syracuse University.
The study also showed that daily mental health symptoms for EMS workers can be reduced through recovery activities such as exercising, socializing with other people, and finding meaning in the day's challenges.
The study, " END ...
Patients with a high number of genes most associated with pathways that lead to cell death in lung cancer are at increased risk of dying early from their disease, researchers report.
Also seemingly paradoxically, patients with high expression of this "21-gene cell death signature" the researchers have identified, have indicators that their immune system is attacking the cancer, like higher levels of cytotoxic T cells, which typically kill cancer.
But they also have high levels of molecules that can suppress those T cells, helping transform them into dysfunctional, "exhausted" T cells, they report in the journal Cancers.
This novel genomic signature can be used both to better predict how a patient with ...
In 2020, the International Agency for Research on Cancer of the World Health Organization stated that breast cancer accounts for most cancer morbidities and mortalities in women worldwide. This alarming statistic not only necessitates newer methods for the early diagnosis of breast cancer, but also brings to light the importance of risk prediction of the occurrence and development of this disease. Ultrasound is an effective and noninvasive diagnostic procedure that truly saves lives; however, it is sometimes difficult for ultrasonologists to distinguish between malignant tumors and other ...
X-Ray Experiments, Machine Learning Could Trim Years Off Battery R&D
By Glenn Roberts Jr.
An X-ray instrument at Berkeley Lab contributed to a battery study that used an innovative approach to machine learning to speed up the learning curve about a process that shortens the life of fast-charging lithium batteries.
Researchers used Berkeley Lab's Advanced Light Source, a synchrotron that produces light ranging from the infrared to X-rays for dozens of simultaneous experiments, to perform a chemical imaging technique known as scanning transmission ...
Parkinson's disease (PD) is well known as a debilitating disease that gradually worsens over time. Although the disease's progression has been largely tied to the loss of motor functions, non-motor symptoms, including the loss of cognitive abilities, often emerge early in the disease.
Much less understood is the role that specific neural circuits play in these distinct motor and non-motor functions.
A new study led by neurobiologists at the University of California San Diego and their colleagues found that specific, identifiable neural pathways are charged with particular functions during stages of the disease. ...
Developing new materials and novel processes has continued to change the world. The M3I3 Initiative at KAIST has led to new insights into advancing materials development by implementing breakthroughs in materials imaging that have created a paradigm shift in the discovery of materials. The Initiative features the multiscale modeling and imaging of structure and property relationships and materials hierarchies combined with the latest material-processing data.
The research team led by Professor Seungbum Hong analyzed the materials research projects reported by leading global ...
