Payout Policies of Privately Held Firms: Flexibility and the Role of Income Taxes

Abstract I argue that growth in private equity and publicly traded ownership of US for-profit colleges has created new shareholder-value pressures for schools to maximize returns for investors. Privately held firms, which had long dominated the sector, were converted to private equity ownership through 88 buyouts since 1987. Private equity managers then used IPOs to establish 20 of 35 publicly traded firms that operated in the sector. I use longitudinal panel analyses of 14,212 federally qualified colleges to show that schools under these ownership forms featured unusually high debts and low graduation rates for students. The results (a) provide some of the most robust evidence to date that shareholder value strategies of cost-cutting and implicit contract violations can adversely affect non-labor stakeholders; and (b) help to theorize the growing but understudied role of private equity as a transitional ownership form that spreads shareholder value strategies to privately held firms.

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Taxes as a Determinant of Managerial Compensation in Privately Held Insurance Companies

The Accounting Review ◽

10.2308/accr.2001.76.4.655 ◽

2001 ◽

Vol 76 (4) ◽

pp. 655-674 ◽

Cited By ~ 10

Author(s):

Bin Ke

Keyword(s):

Control Sample ◽

Tax Planning ◽

Managerial Compensation ◽

Insurance Companies ◽

Tax Rates ◽

Investment Income ◽

Federal Income Tax ◽

Planning Decision ◽

Privately Held Firms ◽

Privately Held

This study empirically investigates how taxes affect managerial compensation for a sample of privately held insurers whose managers own a large percentage of the firm's stock (I refer to these as management-owned insurers) during 1989–1996. Shareholder/managers receive two types of income from the firm they own: compensation income as employees, and investment income as shareholders. Although compensation income is taxable to employees and deductible by employers, investment income is subject to double taxation. Thus, the mix of the two is an important tax-planning decision for management-owned insurers. I predict and find that as individual tax rates increased relative to corporate tax rates from 1989–1992 to 1993–1996, shareholder/managers paid themselves less tax-deductible compensation relative to a control sample of nonmanagement-owned insurers (i.e., privately held insurers with no managerial ownership). The study's results expand our understanding of management-owned, privately held firms' tax-planning strategies, and have implications for the efficiency of the federal income tax system.

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Financial Reporting Quality and External Debt Financing Constraints: The Case of Privately Held Firms

Abacus ◽

10.1111/abac.12083 ◽

2016 ◽

Vol 52 (3) ◽

pp. 351-373 ◽

Cited By ~ 15

Author(s):

Shujun Ding ◽

Mingzhi Liu ◽

Zhenyu Wu

Keyword(s):

Financial Reporting ◽

External Debt ◽

Reporting Quality ◽

Debt Financing ◽

Financial Reporting Quality ◽

Financing Constraints ◽

Privately Held Firms ◽

Privately Held

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Ownership Concentration and Performance of Privately-Held Firms with Multiple Owners and the Moderating Effect of Managerial and Corporate Ownership: Evidence from Post-Socialist European Countries

Corporate Governance in Central Europe and Russia - CSR, Sustainability, Ethics & Governance ◽

10.1007/978-3-030-39504-9_2 ◽

2020 ◽

pp. 11-31

Author(s):

Aleš Kubíček ◽

Ondřej Machek

Keyword(s):

Moderating Effect ◽

European Countries ◽

Ownership Concentration ◽

Corporate Ownership ◽

Privately Held Firms ◽

And Performance ◽

Privately Held

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Valuation And Market Timing In Private M&A Transactions

Journal of Business & Economics Research (JBER) ◽

10.19030/jber.v1i8.3032 ◽

2011 ◽

Vol 1 (8) ◽

Author(s):

Ted Azarmi ◽

Florian Eisele ◽

Christine Haecker

Keyword(s):

Market Timing ◽

Point Of View ◽

Font Size ◽

Private Companies ◽

Maximum Price ◽

Business Conditions ◽

Privately Held Firms ◽

Time Required ◽

The Right ◽

Privately Held

The objective of this case is to teach and initiate a classroom discussion about the optimal market timing for the sale of a mid-cap privately held firm.  The discussion is facilitated by a real world case example that focuses on the sale of a Little Rock, AK based plastic injection molding company with approximately $20 million in revenues. Theoretical and practical issues central to receiving maximum price in relation to selling at the right time are addressed.  Considered are the desired time to close the deal from the owner’s point of view, the time required for successful completion of the sale process, business conditions in this industry, firm-specific business conditions, and ability of agents to time this market.   This case also discusses various reasons for the sale of private companies and the effect of respective sale motives on the placement of these firms.  Principally, the retirement decision by the owners of small privately held firms as the most frequent reason for the sale of these companies is explored.

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