The traditional view of companies’ dividend decisions is high dividends indicate the company has a good performance and low dividends indicate the company has a bad performance. When companies decide to pay high dividends, investors prefer to buy the companies’ shares and the share price will go up; when companies decide to pay low dividends, investors prefer to sell the companies’ shares and the share price will go down. However, Modigliani & Millar (1961) argued that share prices were determined by future earning potential not dividends paid now. Thus share value is determined by investment policy, not the amount of earnings distributed. Some companies decide to pay low dividends or even no dividends because they want to use these funds to invest in some attractive projects and these decisions will benefit the companies in the future. Some companies decide to pay high dividends are just because they do not have value projects to invest in. Also, M&M argued that shareholders are indifferent to the companies’ dividend decisions. When companies not pay dividends and shareholders want cash, they can simply sell some shares and when companies pay dividends, shareholders can also use dividends to buy more shares to leave funds in the company. In reality, companies tend to avoid very low dividend and very high dividend level. They prefer to give stable dividends with stable growth.
There is an example in the real world of how companies make dividend decisions. Wolseley, the world’s largest distributor for heating and plumbing products, has announce that it reinstates the dividend this year and the company’s profit increase to 5%. Wolseley’s share price increase 25p/share. This example shows that many investors hold the traditional view about the companies’ dividends. Many investors prefer companies give dividends and when companies distribute dividends, there will be lots of investors attracted by companies’ decisions and buy companies’ shares and the share price go up. Although the share prices also can be affected by other things, companies’ dividend decisions in some way can influence companies share prices.
All in all, in my opinion, in principle, companies’ dividend decisions are irrelevant to companies’ performance. It is just relevant to companies’ dividend policy. However, we cannot control investors’ mind and most of them still hold the traditional view of ‘dividend decisions’. So companies need to consider all these elements to make final dividend decisions.
Saturday 9 April 2011
Thursday 31 March 2011
Blog 9: HMV is trying to reduce its debt
The traditional view of financial gearing is that a certain level of gearing can increase shareholder wealth (or the value of the company) and beyond this level, the company starts to face high risks and shareholders may consider the company as a risky one so that start to sell the shares. And eventually, the share price falls. However, in Modigliani–Miller theorem, companies’ market values are not impacted by the WACC (weight average cost of capital). The theorem (Modigliani–Miller:1985) states ‘in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, a company’s value is unaffected by how it is financed, regardless of whether the company’s capital consists of equities or debt, or a combination of these, or what the dividend policy is.’ Then the companies’ values are determined by only their businesses. But in the real world, there is no perfect market, and the taxes, bankruptcy costs, asymmetric information are indeed exist. Then what should we do in regards to the financial gearing to increase the value of the company? Companies’ debts are tax deductible. Then is it good for companies to maximum their debts?
Recently, HMV plans to shut 60 stores over 12 months in order to cut its ballooning debt. According to Financial Times, it expected to breach covenants on ￡130m of borrowings after its April year-end. And it is consider a company voluntary arrangement.
We can see from HMV’s 2010 balance sheet, there is a high gearing of company’s overall capital structure. It is about 49% (96.3￡m/ 96.3￡m + 100.4￡m). Its share price is continuing decreased despite a little rise up recently. The main reason that HMV heavily rely on debt is because of its bad products selling. More people like to buy music and video that are made online and this has affected the performance of HMV.
Why not HMV maintain this high gearing? It is just because this high gearing may let HMV face Bankruptcy risk so it is trying its best to reduce the debt. This seems to link with the traditional view – high gearing may face high risks. However, HMV’s high gearing situation is linked with its business. If HMV have a good performance, it will not rely heavily on debt. On one side, all equity will let company lose the benefit of low cost debt, on the other side, high debt will let them face the bankruptcy risk. At the same time, investors always think low debt is better than high debt. Also companies would minimum their dependence on debt (except the bank industry, etc, who rely on debt to make money) and to declare on the annual report as a good performance. Like in Ashtead Group’s 2010 annual report, it states in its performance: ‘Net debt reduced to £829m (2009: £1,036m); net debt to EBITDA leverage of 3.1 times’.
In my opinion, companies should not mainly focus on the capital structure (of course, a suitable use of financial gearing can benefit the companies a lot); instead, they should focus on how to manage their businesses well so that they can earn more profits.
Recently, HMV plans to shut 60 stores over 12 months in order to cut its ballooning debt. According to Financial Times, it expected to breach covenants on ￡130m of borrowings after its April year-end. And it is consider a company voluntary arrangement.
We can see from HMV’s 2010 balance sheet, there is a high gearing of company’s overall capital structure. It is about 49% (96.3￡m/ 96.3￡m + 100.4￡m). Its share price is continuing decreased despite a little rise up recently. The main reason that HMV heavily rely on debt is because of its bad products selling. More people like to buy music and video that are made online and this has affected the performance of HMV.
Why not HMV maintain this high gearing? It is just because this high gearing may let HMV face Bankruptcy risk so it is trying its best to reduce the debt. This seems to link with the traditional view – high gearing may face high risks. However, HMV’s high gearing situation is linked with its business. If HMV have a good performance, it will not rely heavily on debt. On one side, all equity will let company lose the benefit of low cost debt, on the other side, high debt will let them face the bankruptcy risk. At the same time, investors always think low debt is better than high debt. Also companies would minimum their dependence on debt (except the bank industry, etc, who rely on debt to make money) and to declare on the annual report as a good performance. Like in Ashtead Group’s 2010 annual report, it states in its performance: ‘Net debt reduced to £829m (2009: £1,036m); net debt to EBITDA leverage of 3.1 times’.
In my opinion, companies should not mainly focus on the capital structure (of course, a suitable use of financial gearing can benefit the companies a lot); instead, they should focus on how to manage their businesses well so that they can earn more profits.
Friday 25 March 2011
Blog 8: CheBanca! Has made a excellent business
We have learnt from our business books that when companies want to choose projects to invest, they can use the analysis tools such as NPV (net present value), IRR (internal rate of return), ARR (Accounting rate of return), and payback figure. NPV can tell us what our cash flow is like in the future, and payback figure can let us know when we can get all our money back, etc. But these figures are just estimate. No one absolutely knows whether our money can get back, or what exactly of the cost of capital is in each year. So that needs us to consider more instead of just looking at the figures. We should know what the business environment is like, what kind of risks we have, what is our costs range, etc.
CheBanca!, a subcompany of Mediobanca (a banking group of Italian), has successfully developed its online business which separately from its parent company. According to The Wall Street Journal, CheBancal! has launched its business in 2008. It makes almost 90% of its business transaction via the Web. And its clients doubled to 400,000 last year.
Why CheBancal! began its business in 2008? There were still credit crunch in 2008. And at that time, bank Lehman Brothers files for bankruptcy protection, and many banks were badly affected. Although CheBancal! is a commercial bank, there was still a high risk for CheBancal! to begin business at that time because people were lost their confidence towards banks. Also, CheBancal! has made pays 2.5% on deposits which are 0.5% higher than the standard accounts at other Italian retail banks. If we use the analysis tools to appraise CheBancal!’s project, we may find it will last a long time to break even because of the bad economy; the ARR of the online business may lower than the traditional banking business; and the NPV of the online business my lower than the traditional one. Then in the end, we may not invest this project.
However, CheBancal!’s business is excellent. People in Mediobanca made manly decision to begin business in 2008. The online transactions have reduced lots of costs, and make them lower costs compare with the traditional banks. This let them have the ability to pay higher deposits interest than other banks. Most of its employees are hired from the retailers such as IKEA, Inditex’s Zara. So it has good salespeople to promote bank’s products. It tries to make everything simple and let customers look at the same computer screen as its employees’ (try to make everything transparent). These indeed attract many customers and make its deposits of €10 billion. Christian Miccoli, the chief executive of CheBanca!, says that he is sure this year the unit will break even.
All in all, when we appraise projects, we can’t just look at analysis figures. We need to analyze the environment risk, and if possible, we would try our best to control our costs within a narrow range.
CheBanca!, a subcompany of Mediobanca (a banking group of Italian), has successfully developed its online business which separately from its parent company. According to The Wall Street Journal, CheBancal! has launched its business in 2008. It makes almost 90% of its business transaction via the Web. And its clients doubled to 400,000 last year.
Why CheBancal! began its business in 2008? There were still credit crunch in 2008. And at that time, bank Lehman Brothers files for bankruptcy protection, and many banks were badly affected. Although CheBancal! is a commercial bank, there was still a high risk for CheBancal! to begin business at that time because people were lost their confidence towards banks. Also, CheBancal! has made pays 2.5% on deposits which are 0.5% higher than the standard accounts at other Italian retail banks. If we use the analysis tools to appraise CheBancal!’s project, we may find it will last a long time to break even because of the bad economy; the ARR of the online business may lower than the traditional banking business; and the NPV of the online business my lower than the traditional one. Then in the end, we may not invest this project.
However, CheBancal!’s business is excellent. People in Mediobanca made manly decision to begin business in 2008. The online transactions have reduced lots of costs, and make them lower costs compare with the traditional banks. This let them have the ability to pay higher deposits interest than other banks. Most of its employees are hired from the retailers such as IKEA, Inditex’s Zara. So it has good salespeople to promote bank’s products. It tries to make everything simple and let customers look at the same computer screen as its employees’ (try to make everything transparent). These indeed attract many customers and make its deposits of €10 billion. Christian Miccoli, the chief executive of CheBanca!, says that he is sure this year the unit will break even.
All in all, when we appraise projects, we can’t just look at analysis figures. We need to analyze the environment risk, and if possible, we would try our best to control our costs within a narrow range.
Saturday 19 March 2011
Blog 7: Financial Services Authority (FSA) plans to ban fast-track loans
2007’s financial crisis has badly affected global economy especially the western countries. The main root cause of the crisis was US’ CDO (Collateralized debt obligation). At the beginning, it was not easy to borrow money from a US bank because a borrower should have a relatively good credit score and a suitable and stable income. The bank lent money to those ‘good’ borrowers and repackaged these loans into CDOs (also a type of Mortgage-Backed Securities (MBS)) and sold them to Fannie Mae and Freddie Mac (mortgage lenders). These two corporations sold these securities to investment banks or individual investors or even other countries. When the borrowers repaid interests to the banks, investors could be distributed interests until the capitals were back. At a time, MBS has stable interests and were better than other financial products (government securities, share stock…), so it was famous among investors. Later the demands for MBS were increased, and the commercial banks lower the borrowers’ credit level (they won’t have much affected as they sell these MBS to mortgage lenders). This were a destroy actions. Housing prices were increased, many people can buy houses. However later these credit B or C borrowers didn’t have money to repay to the banks, and banks couldn’t sell the mortgages – houses in better prices, so the credit crunch came. The credit crunch has caused many difficult to many countries and this affection even has persisted to today.
Recently, FSA has made a proposals including require the banks check borrowers’ income before they offer loans to them. The proposals also suggest banning fast-track loans which need fewer documents of the borrowers. I think it is just because FSA is afraid of banks doing subprime mortgages again so made the proposals to prevent things happen again. But many hold oppose opinions. Banks have already tightened up their criteria for fast –track loans and the fast-track loans only offer to those borrowers who met a certain conditions (such as high credit score, the value of mortgages should higher than loan’s) The council of Mortgage Lenders (CML) considered that banning fast-track loans can increase management costs for lenders, and these costs will ultimately be boren by consumers.
In my opinion, it is good to see that FSE has learnt lessons from the financial crisis and made steps to prevent banks going wrong again. However banks themselves have also learnt lessons from the crisis and now they can better manage the credit problems. Fast-track is an effective sector and can reduce costs and time of loan activities. Many banks just offer fast-track to high credit scores and familiar customers and the loans need to less than ￡500,000. Besides, the self-employed now can’t have self-certified mortgages. According to a mortgage broker, the self-employed need to have evidence to prove their income so that they can have loans.
In the future, we don’t know whether we will have another financial crisis (hope not!), but banks or companies can do risk management to reduce the crisis hit. And they should not overlook every transaction they made.
Recently, FSA has made a proposals including require the banks check borrowers’ income before they offer loans to them. The proposals also suggest banning fast-track loans which need fewer documents of the borrowers. I think it is just because FSA is afraid of banks doing subprime mortgages again so made the proposals to prevent things happen again. But many hold oppose opinions. Banks have already tightened up their criteria for fast –track loans and the fast-track loans only offer to those borrowers who met a certain conditions (such as high credit score, the value of mortgages should higher than loan’s) The council of Mortgage Lenders (CML) considered that banning fast-track loans can increase management costs for lenders, and these costs will ultimately be boren by consumers.
In my opinion, it is good to see that FSE has learnt lessons from the financial crisis and made steps to prevent banks going wrong again. However banks themselves have also learnt lessons from the crisis and now they can better manage the credit problems. Fast-track is an effective sector and can reduce costs and time of loan activities. Many banks just offer fast-track to high credit scores and familiar customers and the loans need to less than ￡500,000. Besides, the self-employed now can’t have self-certified mortgages. According to a mortgage broker, the self-employed need to have evidence to prove their income so that they can have loans.
In the future, we don’t know whether we will have another financial crisis (hope not!), but banks or companies can do risk management to reduce the crisis hit. And they should not overlook every transaction they made.
Saturday 12 March 2011
Blog 6: News Corporation’s plan of taking over BSkyB
Last week I have mentioned that M&A (mergers and acquisitions) activity is one of the channels for companies to make FDI. This week my blog will focus on M&S activity.
M&S activity will cost the company a lot of money. But it costs fewer compare with the Greenfield investment. Most companies’ M&S activity will focus on their own or relevant industries to enhance their benefits and seldom will purchase companies of irrelative industries to diversify their business. The synergy of two companies can bring greater value than the sum of its parts (Arnold: 2008). They can share their financial resources, human resources and market, increase their bargain power, reduce the cost of the products due to their large scales of production, etc. However it may also affect employees of the companies and customer benefits due to the redundancies and reducing customers’ bargain power.
Recently, Rupert Murdoch, the chairman of News Corporation has made decision to take over BSkyB. In June 2010, News Corp. announces it bid of 700p offer to BSkyB desiring to take over the rest of BSkyB’s 60% shares which it did not own. This price was rejected and now the share price is above 800p. But just as one person who knows Murdoch’s family well said that Murdoch will not give up and he will have this at any price.
This action has irritated many medium companies and many people hold oppose attitudes towards the activity. However, this M&A activity has been approved by UK government.
Will this activity benefit shareholders’ wealth? Well, I think it does. Rupert Murdoch already has 39.1% shares of BSkyB. If News Corp. continues take over the rest shares of BSkyB, then Murdoch can fully control BSkyB.
Although News Corp offers to spin off Sky News and also it will have its independent board. According to BBC News, some commentators said that Murdoch’s takeover of the times newspapers and the Wall Street Journal also involve the independent boards, but it is worthless to protect editorial independence from Murdoch. Then News Corp. will have stronger negotiate power towards the advertisers, and even the governments. Also it will have strong competition among the large medium companies. Furthermore, BSkyB’s performance is really good, and it has a strong cash generating possibilities. This will also benefit New Corp.
Will this benefit the society? I think no. Many afraid this M&A activities will damage the freedom of speech since News Corp. already owns four UK newspapers. Also this is detrimental to other medium companies because the activities will weaken their negotiate power and increase their operating cost. Murdoch may influence the news publication and to let the news support what he want? That’s really awful.
Indeed, this merger has increased both the target and Bidding companies’ share prices.
(Resource from FT)
(Recourse form LSE)
BSkyB’s shares prices increase rapidly. Many BSkyB investors are optimistic about BSkyB’s share price and News Corp. is not easy to deal with these investors. There are long-term, short-term investors, and investors. News Corp. needs to win over these investors especially the large shareholders then it can clinch the deal.
Overall, M&A is a complex activity which will not only has great influence between the target and bidding companies, but also the society.
M&S activity will cost the company a lot of money. But it costs fewer compare with the Greenfield investment. Most companies’ M&S activity will focus on their own or relevant industries to enhance their benefits and seldom will purchase companies of irrelative industries to diversify their business. The synergy of two companies can bring greater value than the sum of its parts (Arnold: 2008). They can share their financial resources, human resources and market, increase their bargain power, reduce the cost of the products due to their large scales of production, etc. However it may also affect employees of the companies and customer benefits due to the redundancies and reducing customers’ bargain power.
Recently, Rupert Murdoch, the chairman of News Corporation has made decision to take over BSkyB. In June 2010, News Corp. announces it bid of 700p offer to BSkyB desiring to take over the rest of BSkyB’s 60% shares which it did not own. This price was rejected and now the share price is above 800p. But just as one person who knows Murdoch’s family well said that Murdoch will not give up and he will have this at any price.
This action has irritated many medium companies and many people hold oppose attitudes towards the activity. However, this M&A activity has been approved by UK government.
Will this activity benefit shareholders’ wealth? Well, I think it does. Rupert Murdoch already has 39.1% shares of BSkyB. If News Corp. continues take over the rest shares of BSkyB, then Murdoch can fully control BSkyB.
Although News Corp offers to spin off Sky News and also it will have its independent board. According to BBC News, some commentators said that Murdoch’s takeover of the times newspapers and the Wall Street Journal also involve the independent boards, but it is worthless to protect editorial independence from Murdoch. Then News Corp. will have stronger negotiate power towards the advertisers, and even the governments. Also it will have strong competition among the large medium companies. Furthermore, BSkyB’s performance is really good, and it has a strong cash generating possibilities. This will also benefit New Corp.
Will this benefit the society? I think no. Many afraid this M&A activities will damage the freedom of speech since News Corp. already owns four UK newspapers. Also this is detrimental to other medium companies because the activities will weaken their negotiate power and increase their operating cost. Murdoch may influence the news publication and to let the news support what he want? That’s really awful.
Indeed, this merger has increased both the target and Bidding companies’ share prices.
BSkyB’s shares prices increase rapidly. Many BSkyB investors are optimistic about BSkyB’s share price and News Corp. is not easy to deal with these investors. There are long-term, short-term investors, and investors. News Corp. needs to win over these investors especially the large shareholders then it can clinch the deal.
Overall, M&A is a complex activity which will not only has great influence between the target and bidding companies, but also the society.
Saturday 5 March 2011
Blog 5: Continual FDI in eastern area will be planned by Paris Group
FDI (Foreign Direct Investment) plays an important role in the global market. And it is growing very quickly. FDI can provide companies opportunities to develop in new markets or to reduce costs for their existing markets. There are mainly two ways to have FDI, they are Greenfield investment which means companies pay license and set up factories in one countries, and International M&A (mergers and acquisitions) activity that seeks to buy other companies in other countries.
According to Financial Times, recently, Dubai-based retailers Paris Group has saved Gianfranco Ferré from close down. Paris Group is a large group with many subsidiaries. Due to the financial crisis, the subsidiary of IT holding (one Italy State Holding Company) was deeply in debt and IT holding has to sell it to Paris Group. This international M&A activity can let Paris Group fast enter into Italy and enjoy existing brand power of Gianfranco Ferre. There are many companies do the same things like Paris Group. Li&Fung (a Hong Kong company) has purchased Hardy Amies (one British loyal brand); One of Indian Mittal Steel dynasty- Megha Mittal has bought Escada (German luxury brand).
There are great growing demand of luxury goods in eastern areas especially in China and India. Paris Group plans to invest about €30m in Gianfranco Ferré and which allocate €20m for FDI. And it expects this will rise to a profit of €8.2m in 2014. Gianfranco Ferré will focus on luxury accessories and cosmetics. FDI will give Gianfranco Ferré opportunities to recover its business.
People in many developing countries have strong power to consume goods now, especially in China. Many Chinese people are sensitive about their reputation and they are keen to have famous clothing brands, etc. no matter what status they are. I think that’s why Paris Group plans to launching most of its stores in China.
Although Paris Group plans to cut costing, and China has cheap labour and material, it will still keep open a factory in Bologna (in Italy) instead of set up production line in China. One main reason of many companies to have FDI is to reduce their cost, then why not Paris Group? Its reason is that the emerging market consumers are prefer to buy goods “made in Italy”, “made in France”. They may think “made in China” are represent cheap goods with bad quality. Indeed, I also have this strange attitude. I just prefer to buy clothes “made in other countries” instead of “made in China”.
FDI can help one company to develop new markets or recover its business (due to the dramatically profit decreased in its existing market). But the enterprisers also need to have intelligent mind to make suitable judgments. They need to acquire large amount of information to understand the countries which they want to have FDI, such as their culture, situations…
According to Financial Times, recently, Dubai-based retailers Paris Group has saved Gianfranco Ferré from close down. Paris Group is a large group with many subsidiaries. Due to the financial crisis, the subsidiary of IT holding (one Italy State Holding Company) was deeply in debt and IT holding has to sell it to Paris Group. This international M&A activity can let Paris Group fast enter into Italy and enjoy existing brand power of Gianfranco Ferre. There are many companies do the same things like Paris Group. Li&Fung (a Hong Kong company) has purchased Hardy Amies (one British loyal brand); One of Indian Mittal Steel dynasty- Megha Mittal has bought Escada (German luxury brand).
There are great growing demand of luxury goods in eastern areas especially in China and India. Paris Group plans to invest about €30m in Gianfranco Ferré and which allocate €20m for FDI. And it expects this will rise to a profit of €8.2m in 2014. Gianfranco Ferré will focus on luxury accessories and cosmetics. FDI will give Gianfranco Ferré opportunities to recover its business.
People in many developing countries have strong power to consume goods now, especially in China. Many Chinese people are sensitive about their reputation and they are keen to have famous clothing brands, etc. no matter what status they are. I think that’s why Paris Group plans to launching most of its stores in China.
Although Paris Group plans to cut costing, and China has cheap labour and material, it will still keep open a factory in Bologna (in Italy) instead of set up production line in China. One main reason of many companies to have FDI is to reduce their cost, then why not Paris Group? Its reason is that the emerging market consumers are prefer to buy goods “made in Italy”, “made in France”. They may think “made in China” are represent cheap goods with bad quality. Indeed, I also have this strange attitude. I just prefer to buy clothes “made in other countries” instead of “made in China”.
FDI can help one company to develop new markets or recover its business (due to the dramatically profit decreased in its existing market). But the enterprisers also need to have intelligent mind to make suitable judgments. They need to acquire large amount of information to understand the countries which they want to have FDI, such as their culture, situations…
Sunday 27 February 2011
Blog 4: Ireland are trying the best to protect the 12.5% corporate tax
Companies always pay close attention to corporate tax. Legally minimize the overall tax burden can maximize shareholder returns and these is what most companies eager for. A few countries’ corporate taxes are very low, such as Cayman Islands, Cyprus, and Ireland. These countries, for example, Ireland, has attractive many multinational companies. Many US companies have set up subsidiaries in Ireland and this have create many jobs for Irish.
Recently, due to the gloomy banking landscape, Irish government has to accept the assist from EU/IMF. EU/IMF programme is demanding €3.7bn of tax increases between 2011 and 2014. And almost all European countries especially France and Germany are discussing about the Ireland corporate tax and give pressure to Ireland government to increase the corporate tax.
Although Ireland government is under tension, it insists that the 12.5% corporate tax won’t be changed. Low corporate tax can attract foreign direct investment (FDI) and this is also a part of their economic development strategy. To fulfil the requirement of EU/IMF programme, Ireland government may add other taxes such as VAT, property tax instead of corporate tax.
Now the Irish government is negotiating with the EU/IMF in order to lower the interest rate on the loan. EU/IMF may ask Ireland to make concessions about the corporate tax. But in Ireland, many think preserving the unique corporation tax policy is more important than lowering the interest rate of the bailout package. Indeed, the low corporate tax has not decreased the tax revenue. According to PwC ( the largest professional services firm in Ireland provides integrated Audit, Tax and Advisory services across all industries in Ireland and internationally), as a% of GDP, Ireland’s corporate tax revenue is relatively higher than EU standards (2.9% in 2008, in contrast to Germany at 1.1% and an EU average of 2.7%). (http://www.pwc.)
In my opinion, increasing corporate tax will cause negative effect on countries. The FDI investment will decrease; a lot of people will lose their jobs and affect the economic stability. The 12.5% corporate tax strengthen Ireland’s international competitiveness and stability. That’s why Ireland government defends the corporate tax policy.
Recently, due to the gloomy banking landscape, Irish government has to accept the assist from EU/IMF. EU/IMF programme is demanding €3.7bn of tax increases between 2011 and 2014. And almost all European countries especially France and Germany are discussing about the Ireland corporate tax and give pressure to Ireland government to increase the corporate tax.
Although Ireland government is under tension, it insists that the 12.5% corporate tax won’t be changed. Low corporate tax can attract foreign direct investment (FDI) and this is also a part of their economic development strategy. To fulfil the requirement of EU/IMF programme, Ireland government may add other taxes such as VAT, property tax instead of corporate tax.
Now the Irish government is negotiating with the EU/IMF in order to lower the interest rate on the loan. EU/IMF may ask Ireland to make concessions about the corporate tax. But in Ireland, many think preserving the unique corporation tax policy is more important than lowering the interest rate of the bailout package. Indeed, the low corporate tax has not decreased the tax revenue. According to PwC ( the largest professional services firm in Ireland provides integrated Audit, Tax and Advisory services across all industries in Ireland and internationally), as a% of GDP, Ireland’s corporate tax revenue is relatively higher than EU standards (2.9% in 2008, in contrast to Germany at 1.1% and an EU average of 2.7%). (http://www.pwc.)
In my opinion, increasing corporate tax will cause negative effect on countries. The FDI investment will decrease; a lot of people will lose their jobs and affect the economic stability. The 12.5% corporate tax strengthen Ireland’s international competitiveness and stability. That’s why Ireland government defends the corporate tax policy.
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