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Corporations and Taxation: A Largely Private Matter?



I. THE ORIGINS OF OWNERSHIP STRUCTURE: 4. Corporations and Taxation: A Largely Private Matter? This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Concentrated Corporate Ownership Volume Author/Editor: Randall K. Morck, editor Volume Publisher: University of Chicago Press Volume ISBN: 0-226-53678-5 Volume URL: Conference Date: May 31-June 1, 1998 Publication Date: January 2000 Chapter Title: I. THE ORIGINS OF OWNERSHIP STRUCTURE: 4. Corporations and Taxation: A Largely Private Matter? Chapter Author: Robert Brown, Jack Mintz, Thomas Wilson Chapter URL: Chapter pages in book: (p. 105 - 138) Corporations and Taxation A Largely Private Matter? Robert D. Brown, Jack M. Mintz, and Thomas A. Wilson Corporations may be “public” (widely held) or “private” (closely held). As has long been recognized in the industrial organization literature, be- ginning with Berle and Means (1932), the performance of widely held cor- porations may differ from that of those that are closely held for a variety of reasons (see, e.g., Jensen and Meckling 1976; and Demsetz 1983). Private corporations may be governed better than public firms since managers in public firms have greater incentives to “shirk” by enjoying nonpecuniary benefits (Williamson 1978), or controlling shareholders of public firms may make decisions that have negative consequences for new shareholders after an initial public offering (Bebchuk and Zingales, chap. 2 in this vol- ume). On the other hand, owners of private businesses may be less willing to take on risk (owing to a lack of opportunities to diversify risk) or might face constraints in raising equity finance. The purpose of this paper is to examine how taxation can influence businesses’ choice between private and public status. In section 4.1, we begin with a review of the primary differences between U.S. and Canadi

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