The tax treatment of employee stock options : generous to a fault

In the 2000 budgets, both the federal and Ontario governments introduced changes to the tax treatment of employee stock options for the explicit purpose of making their tax treatment in Canada similar to or more favourable than that in the United States. The federal budget added a deferral, similar to that currently applicable to options granted by Canadian-controlled private corporations, for up to $100,000 per year of public company stock options. The Ontario budget introduced an exemption from tax for employees involved in research and development on the first $100,000 per year of employee benefits arising on the exercise of qualified stock options or on eligible capital gains arising from the sale of shares acquired by the exercise of eligible stock options. These proposals reflect the apparent acceptance by the two governments that there is a “brain drain” from Canada to the United States of knowledge workers in the “new” economy and that reductions in Canadian taxes should stem this drain. In the author’s view, the tax treatment of employee stock options, even without these changes, is overly generous. Both the federal and provincial proposals ignore the fact that most employee stock options are taxed more favourably in Canada than in the United States in any event. In particular, most employee stock option benefits in Canada are taxed at capital gains tax rates, whereas in the United States most are taxed at full rates. While the US Internal Revenue Code does provide capital gains tax treatment for certain employee stock option benefits, a number of preconditions must be met. Most important, the shares acquired pursuant to the options must be held for a minimum of one year after the option is exercised. In addition, there are monetary limits on the amount of options that qualify for capital gains treatment. In Canada, there are generally no holding period requirements or monetary limits that apply in order for the option holder to benefit from capital gains tax rates. Empirical evidence indicates that the vast majority of employees in the United States exercise their options and immediately sell the shares acquired. These “cashless exercises” do not benefit from capital gains treatment in the United States, whereas similar cashless exercises in Canada generally do. This empirical evidence suggests not only that the 2000 budget proposals are unwarranted, but also that the existing treatment of employee stock options in Canada is already more generous than that in the United States. This article begins with a theoretical “benchmark” for the taxation of employee stock options. The author suggests that employee stock options should be treated in the same manner as other income from employment. In theory, the value of the benefit should be included in income when the option is granted or vests. However, owing to the practical difficulty of valuing employee stock options, the theoretical benchmark proposed is that the value of the benefit (the difference between the fair market value of the shares acquired and the strike price under the option) be taxed when the shares are acquired, and the employer be entitled to a corresponding deduction. The employee stock option rules in Canada and the United States are then compared and contrasted with each other and the benchmark treatment. The article then examines the arguments that have been made for favourable treatment of employee stock options. Included in this critique is a review of the recent empirical work on the Canadian brain drain. Empirical studies suggest that the brain drain—if it exists at all—is small and that, despite what many newspapers and right-wing think-tanks would have us believe, lower taxes in the United States are not the cause. One study, concluding that taxes do have an effect on migration, suggests that even if Canada adopted a tax system identical to that in the United States, the brain drain would be reduced by a mere 10 percent. Indeed, even if Canada eliminated income tax altogether, it would not stop the brain drain. If governments here want to spend money in order to stem the brain drain, they should focus on other areas. For example, Canada produces fewer university graduates in the fields of mathematics, sciences, and engineering than any other G7 country except Italy. The short supply of university graduates in these fields, the apparent loss of top-calibre academics to US
universities, and the consequent lower levels of university research in these areas (an important spawning ground for new ideas in the “new” knowledge-based economy) suggest that Canada may be better served by devoting more resources to its university institutions, particularly in post-graduate programs, rather than continuing the current trend of budget cuts that universities have endured and may further endure if taxes are reduced.
As far as employee stock options are concerned, if Canada does want to look to the United States for guidance on tax reform (which it seems to do with increasing frequency of late), it should adopt the US rules applicable to nonstatutory options, which are close to the proposed benchmark treatment. In the absence of preferential tax treatment, employee stock options would still be included in compensation packages provided that there were sound business reasons for their use. No persuasive evidence has been put forward that the use of stock options, in the absence of tax incentives, is suboptimal. Indeed, the US experience suggests quite the opposite.

Acceptance and leadership-hegemonies of e-commerce policy perspectives

This paper presents an analysis of the e-Commerce policies developed and implemented in the USA, Canada, Australia, Victoria, Finland, Norway, the UK, Ireland, the EU (by the OECD), Singapore, Japan, Malaysia, Thailand and Hong Kong (Special Administrative Region). The paper shows that e-Commerce policy adopted is generally trying to achieve two fundamental aims:

1. to minimize regulatory environments for e-Commerce; and
2. to ease logistical problems in doing e-Commerce—i.e. in paying electronically, in deliver y of goods and in customs, tariffs and duties.

These strategies are designed to create an environment where e-Commerce is adopted by business and government in these countries to achieve ‘best practice’, to become ‘modern’, to gain ‘efficiencies’, because ‘it is the way to go’, because ‘we must have it, because everybody has it’, and because they ‘perceive the benefits of it’. In essence it is being used to gain hegemony in the economic competitiveness of the geopolitical environment created by the Internet. This paper argues that differentiating types of policy is related to ideology and hegemony in the various countries.

Age related motivational segmentation of wine consumption in a hospitality setting

The wine industry is a multi-billion product value category worldwide with a significant part being sales through hospitality service providers. Although wine sales add considerably to the profitability of many restaurants, hotels, bars and other hospitality establishments, few studies have been conducted into wine purchasing behaviour within hospitality settings. This study identifies the factors that influence consumers to purchase wine and attempts to demonstrate how the basic demographic characteristic of age is a useful variable for segmentation purposes. The study reveals that there are six dominant factors that influence wine purchasing behaviour and that significant differences in purchase motivation exist between three age segments, 18 to 25 years, 26 to 34 years and 34+years. The results of this research have significant implications for hospitality operators who, with a basic knowledge of the demographic characteristics of their guests, can develop marketing strategies to maximise the sale of wine and wine products

Good governance and market-based reforms : a study of Bangladesh

‘Good governance’ is increasingly regarded as pivotal to development in developing countries. The six indicators recognized as the most effective measurement tools of ‘good governance’ across the world are: voice and accountability; political stability and absence of violence; government effectiveness; regulatory quality; rule of law and control of corruption (Kaufmann, Kraay and Lobaton, 2003: 8–9). This paper investigates how lack of ‘good governance’ affects the success and sustainability of the market-based reforms undertaken in the agriculture sector of Bangladesh. The reforms have been associated with increased food grain production, improved food security conditions and easy access by farmers to agricultural inputs. However, a significant problem has arisen recently: the sale of low quality and underweight agricultural inputs sometimes at higher prices has become common. Not only is this problem undermining the positive impact of the reforms, it is also threatening their sustainability. The paper argues that the problems with regulatory quality, rule of law and control of corruption – indicators of good governance – are the underlying reasons for this problem. In the context of increasing pressures from donors to pursue market-based reforms, this paper stresses the need for integrated governance linking government, business and civil society as paramount for promoting good governance for the success and sustainability of the reforms.

A comparative study on economic factors of construction industries in Australia and China

The construction sector produces the facilities needed for a large majority of the production of goods and services, in which a sizeable proportion of Gross Domestic Product is generated. Recent trends in the globalisation of construction markets indicate that many countries consider construction industry competitiveness as crucial, and are working to increase construction productivity, in particular where the construction industries play an important role in their economic development. This paper first points out the research importance in international construction. Based on economic analyses of construction industries, a study is then carried out to focus on the economic sizes and benefits of the Chinese construction industry and to compare them with the Australian construction industry. Results derived from such an international construction comparison will assist in the Australian construction communities understanding the construction markets and industries in China and will benefit in international construction participation and cooperation.

Self-regulation: a risky option for developing countries? The case of Bangladesh

In recent years, the command and control type of government regulation is giving way to self- regulatory approaches in which industry sectors are responsible for controlling the conduct of their own members. Although self-regulatory approaches are increasingly being adopted with the objective of both improving the rate of compliance and reducing costs in developed countries, this paper argues that this might be a risky option. Developing countries often do not have adequate levels of standards of efficiency, effective legal regulatory frameworks, institutional safeguards and public awareness. Using the Bangladesh agriculture sector as an exemplar, this paper investigates the prospects of self-regulation of small businesses trading in agricultural inputs as a possible remedy for the recent problems associated with the sale of contaminated inputs to the farmers. The paper argues that self-regulation does not develop and is not sustained  independently of the context in which business operates. Importantly, the context includes the legal infrastructure created by the state and the enforcement effort imposed by the state. In the absence of effective state intervention in the public interest, institutional safeguards and public awareness, private entrepreneurs are less constrained to behave in the public interest and in conformity with the objectives of self-regulation. The findings of this paper provide significant implications for addressing the issue of effective regulation in developing countries.

Modelling direct and indirect water requirements of construction

Water consumed directly by the construction industry is known to be of little importance. However, water consumed in the manufacture of goods and services required by construction may be significant in the context of a building's life cycle water requirements and the national water budget. This paper evaluates the significance of water embodied in the construction of individual buildings. To do this, an input-output-based hybrid embodied water analysis was undertaken on 17 Australian non-residential case studies. It was found that there is a considerable amount of water embodied in construction. The highest value was 20.1 kilolitres (kL)/m2 gross floor area (GFA), representing many times the enclosed volume of the building, and many years worth of operational water. The water required by the main construction process is minimal. However, the water embodied in building materials is considerable. These findings suggest that the selection of elements and materials has a great impact on a building's embodied water. This research allows the construction industry to evaluate design and construction in broad environmental terms to select options that might be cost neutral or possibly cost positive while retaining their environmental integrity. The research suggests policies focused on operational water consumption alone are inadequate.

Identifying the barriers to implementing the Victorian Department of Education and Training guidelines regarding the provisions of nutrient dense food options in school canteens

Aims & rationale/Objectives : To identify barriers to the full implementation of new guidelines regarding school canteen menus launched by The Victorian Education Department in May 2004.
Methods : A self-administered questionnaire was sent to principals, business mangers and canteen managers of 13 secondary schools in South West Victoria covered by The Greater Green Triangle area (response rate 59%). The questions explored the canteen's role, operation, staffing and profits; existence and content of canteen policy; enablers and barriers to the sale of healthier foods; introduction and promotion of healthier foods; and perceived implications of banning less healthy foods.
Principal findings : The study identified several barriers to implementing healthy menus in school canteens, these being largely consistent with those found in other studies. The majority of schools reported they were making attempts to follow the guidelines for school food services, but were experiencing difficulty in proceeding to full implementation. The barriers identified through the study were student preference for less healthy options, concerns about profitability, lack of policy or its active communication and promotion at the school level and competition from other food outlets.
Discussion : There was evidence that healthy foods had not been actively promoted, suggesting that identification of student preferences as a barrier was based on perception rather than observation. The Victorian guidelines are effectively voluntary, with no accountability measures in place.
Implications : Research needs to be conducted to provide reliable and tested information about factors which impact on student choice. Schools would benefit from specialised assistance to formulate business plans for contemporary canteens selling healthy food and a clarification of government policy.
Presentation type : Poster

Responsible entrepreneurship in developing countries : understanding the realities and complexities

Developing countries have recently experienced a burgeoning of small-scale individual entrepreneurs (SIEs) – who range from petty traders to personal service workers like small street vendors, barbers and owners of small shops – as a result of market-based reforms, rapid urbanisation, unemployment, landlessness and poverty. While SIEs form a major part of the informal workforce in developing countries and contribute significantly to economic growth, their potential is being undermined when they engage in irresponsible and deceptive business practices such as overpricing, sale of underweight or substandard products, or attempts to hoard goods, to name a few. Despite the growing interest in corporate social responsibility (CSR) initiatives of small businesses in developing countries, the SIEs have received almost no attention. To address this void in the literature, we explore the reasons for the less than optimal level of social responsibility demonstrated by some SIEs in developing countries. We do so by drawing upon the existing literature to develop a comprehensive framework of social responsibility of SIEs highlighting their unique characteristics and the different contextual factors that they encounter in developing countries. Based on this framework, we then present a set of propositions specifying the influence of these contextual factors such as business environment, cultural traditions, socio-economic conditions, and both international and domestic pressures on the business practices of SIEs. The framework offers an explanation for the lack of responsible entrepreneurship of SIEs and has important implications for promoting sustainable business practices in developing countries where businesses are striving hard to survive and compete.

The ill effects of public sector corruption in the water and sanitation sector

In general, given a particular set of institutions, the greater a county's per capita income, the more extensive will be its pro vision of goods and services that require concerted public action. We contend that one of the most important aspects of institutions in this regard is public sector corruption. We test this contention by analyzing 85 countries observed in 1990, 1995, 2000, and 2004--the only years for which data on improved drinking water and adequate sanitation are available. The models point to statistically significant, negative relations between corruption and access to both improved drinking water and adequate sanitation.

Firms as adaptive organizations : the case of Australian trading banks

The conventional accounting notion of ‘going concern’ — that a firm will continue its business operations in the same manner indefinitely — has underpinned accounting practice for over one hundred years. This idea has provided a rationale for spreading costs over accounting periods and for deferring costs as assets in balance sheets. An alternative idea that is widely regarded as reliable in the literatures of economics and deliberate action is that firms continually adapt to changes in market and economic conditions. That is economic behaviour. The implications of that view of a firm for accounting have been systematically explored by Chambers (1966). While not examining those particular implications, many other accounting theorists have been critical of the conventional accounting idea of 'going concern' and of its impact on accounting practice. The two notions of ‘going concern’ - as static or adaptive enterprises - are examined by referring to the business operations of the four major Australian trading banks over the period 1983-1991. Banks were selected because they are commonly thought to be particularly ‘conservative’ organizations. The period 1983—1991 was chosen because it covers the era of deregulation of the Australian financial system. The evidence adduced by this study indicates that the Australian trading banks have continually adapted their organizational structures and business operations in the light of changes in technology, markets for financial services, government policies and domestic and global economic conditions. Illustrations of adaptive behaviour by banks ate drawn from their normal operating procedures such as the provision of products and services, loan services, acquisitions, sale of property, non-core banking operations and international banking. It is argued on analytical grounds that the cost basis of accounting does not yield financial statements that provide factual and up-to-date information about the financial capacity of firms to pay their debts and to continue trading generally; that is, to be going concerns. At any time, those financial capacities are determined by the amount of money commanded by a firm, including the money's worth of its assets, and by its level of debt. It is concluded on empirical grounds that the Australian trading banks, at least, are adaptive entities.

Trapped in white space : the allegations and denials of organ trafficking

Allegations of body parts trafficking implicating the West have been surfacing persistently in the media of many non Western countries for almost 20 years. Western media has responded to the allegations with denials and denunciations. This thesis considers the competing accounts and places them in a framework for analysis.

The long-term predictive validity of the consumers' need for uniqueness scale

This research examines the long-term ability of the consumers’ need for uniqueness measure to predict consumers’ valued possessions, shopping behaviors, and experiences. Consumers’ need for uniqueness reflects individual differences in counterconformity motivation (i.e., the pursuit of differentness relative to others) that is manifest in consumer responses. This research reports on 2 longitudinal assessments of the scale's predictive validity using data collected at 4 stages from a consumer mail-survey sample. One year following initial responses to the trait measure, respondents participated in a second survey in which they photographed and rank ordered their valued possessions. In a third survey, the photographs served as cues to obtain responses to ratings of possession benefits and to questions regarding acquisition of the possession. Overall, the results support a number of hypotheses regarding the relation of consumers’ need for uniqueness to salient possession benefits, types of goods comprising consumers’ valued possessions, and shopping behaviors associated with acquiring valued possessions. Two years following initial responses to the trait measure, members of the consumer mail panel completed a fourth survey, indicating their participation in various uniqueness-enhancing consumer activities. Results support the stability and predictive validity of the measure over the 2-year period. Because the design of possessions and endorsed uniqueness-enhancing activities considered in the consumer mail panel studies varied across individuals, an additional study was conducted that demonstrated the scale's ability to predict individuals’ counterconformity responses to the same choice situation.

An examination of Australian gold mining firms' exposure over the collapse of gold price in the late 1990s

Purpose – The purpose of this study is to examine the exposures of Australian gold mining firms in the highly volatile period from 1995 to 2000. This period has been characterized by significant changes in gold price due to bulk sale of gold by collective central banks. Specifically, the paper aims to investigate several firm-specific factors that are hypothesized to carry substantial influence on gold beta.

Design/methodology/approach – To estimate gold beta, we use the following multifactor model: R_g,_t = a+ß_gGPR_t + ß_xFXR_t + ß_mR_m,_t + _Et , where R_g,_t is the return on the gold stock Index at time t, GPR_t is the gold price return denominated in US dollar at time t, FXR_t is the foreign exchange return of Australian dollar in terms of US dollar at time t, R_m,t is the market return at time t, and _Et is the random error term at time t.

Findings – The paper finds that the values of gold beta are consistently greater than one, implying the sensitive nature of firms’ stock returns to gold price changes. This also suggests that investors holding gold mining stock would receive higher percentage increases in stock returns from a percentage increase in gold price returns, as opposed to investors holding gold bullion. Furthermore, these values have changed substantially over time with significant changes in gold price volatility. The most important and consistent relationship that we find is the impact of firms’ hedging behavior on their respective gold betas. This is consistent with Tufano’s study. It implies that firms, which hedge a greater proportion of their gold reserves, are less sensitive to movements in gold prices. The finding therefore supports the risk management theory that hedging increases shareholder’s wealth. However, cash operating costs, cash reserves and the level of gold production seem to influence very little on the firms’ exposure to gold price changes.

Originality/value – This study is of interest and important to the stock mining companies and investors because the extent of the effect of gold price movements on the stock returns of gold mining companies has significant impacts on returns for both firms and investors especially in their risk management and investment decisions, respectively.

Microeconomic models of intra-household activity time allocation

The primary purpose of this research is to analyze theoretically the group decisionmaking process leading to the allocation of activity time and the consumption of goods, with particular emphasis in the households. Each household is characterized as a group of individuals making joint decisions about their activity participations, alternative activity time allocations and consumption of various goods, such as independent and joint activity time allocations as well as private and shared consumption patterns. We firstly explore why individual-based models are not realistic in multi-person households, and secondly, we summarize various intra-household activity time allocation models based on different decision-making processes. All models are presented under microeconomic principle of utility maximization to represent the economic behavior of the households.