Paul Mason

Bio: Paul Mason is an academic researcher from Baylor University. The author has contributed to research in topics: Private equity & Business. The author has an hindex of 4, co-authored 12 publications receiving 40 citations.

Why Pay Our Fair Share? How Perceived Influence over Laws Affects Tax Evasion

Abstract: We examine how the relation between taxpayers and their government affects tax evasion. Specifically, we examine how perceived influence over government policymaking affects firms' decisio...

The Structure of Private Funds, Their Relation to Private Firms, and the Implications for Accounting, Economics, and Finance Research

Abstract: Private equity and venture capital funds (“private funds”) are an increasingly important component of the economy and hold substantial ownership in other private firms. These funds have unique legal organizational structures, which academic literature has not yet accounted for. This paper has three main goals. First, we lay out the basic legal structure of private funds and describe how these funds interact with the firms they own (“portfolio companies”). Second, we explain the implications of this structure for recent finance research, focusing on how funds’ structure affects secondary market pricing of funds. Third, we discuss how both private fund and private firm structure affects accounting and economics research on private firms. Because a large number of private firms are now owned by private funds, falling under the funds’ unique organizational structure, we urge caution in drawing conclusions regarding private firms when researchers are unable to clearly distinguish between stand-alone private firms and those private firms owned and controlled by private funds (or other parent entities). We also specifically discuss the use of tax return data to study private firms; under the current laws of the U.S., these data are unlikely to allow researchers to isolate stand-alone firms, making these data unreliable for evaluating certain private firm attributes in economics, as well as private firm financial reporting choices in accounting.

Why Pay Our Fair Share? How Perceived Influence Over Laws Affects Tax Evasion

Abstract: We examine how the relation between taxpayers and their government affects tax evasion. Specifically, we examine how perceived influence over government policymaking affects firms’ decisions to evade tax. We argue that firms are less willing to comply with tax laws when they perceive the influence over their government to be unfavorable to them or the result of an unfair policymaking process. Consistent with this argument, we find that firms evade more tax when other domestic firms have more perceived influence over domestic government policymaking. This suggests a potential negative externality of lobbying: higher tax evasion by other firms. However, government effectiveness or lack of corruption eliminates the positive relation between evasion and perceived influence over policymaking. Our study is the first to document the relation between perceived influence over government policymaking and tax evasion, and our results suggest that limiting domestic firms’ influence over policymaking could help governments decrease tax evasion.

Financial Reporting Choices of Private Funds and Their Implications for Capital Formation

Abstract: We perform the first study of the fundamental financial reporting choices – audit, auditor, accounting standard, internal controls audit – of private funds (e.g., private equity, hedge funds, etc.), which represent an increasingly important component of the economy. We find that nearly 80% of private funds that are not subject to mandatory audit requirements obtain audits voluntarily. Larger, older funds with more owners and a higher level of sophisticated ownership are more likely to obtain audits, while funds with a higher level of inside ownership are less likely to obtain audits. Many of these characteristics are also associated with the likelihood of funds engaging a Big 4 auditor, obtaining an internal controls audit, and preparing GAAP financial statements. The growth and creation (termination) of private funds is positively (negatively) associated with funds’ preparation of GAAP financial statements or engagement of Big 4 auditors, providing new evidence on the value of financial reporting in the capital formation process. Overall, our evidence suggests that high-quality financial reporting aids private funds’ capital formation and that funds’ agency costs and the information needs of their equity investors influence funds’ financial reporting choices.

Inequality in the long run

Abstract: This Review presents basic facts regarding the long-run evolution of income and wealth inequality in Europe and the United States. Income and wealth inequality was very high a century ago, particularly in Europe, but dropped dramatically in the first half of the 20th century. Income inequality has surged back in the United States since the 1970s so that the United States is much more unequal than Europe today. We discuss possible interpretations and lessons for the future.

The Incidence and Efficiency Costs of Corporate Taxation when Corporate and Noncorporate Firms Produce the Same Good

Abstract: This year marks the twenty-fifth anniversary of Arnold Harberger's celebrated model of the corporation income tax. While the model has been enormously useful as an analytical device for studying two sector economies, its usefulness for understanding the incidence and excess burden of the corporate income tax remains in question. One difficulty confronting all empirical analyses of the Harberger Model is how to treat noncorporate production in primarily corporate sectors and corporate production in primarily noncorporate sectors. The Harberger Model provides no real guide to this question since it assumes that one good is produced only by corporations and the other good is produced only by noncorporate firms. Stated differently, Harberger models the differential taxation of capital used in the production of different goods, rather than the taxation of capital used by corporations per se. This paper presents a two good model with corporate and noncorporate production of both goods. The incidence of the corporate tax in our Mutual Production Model (MPM) can differ markedly from that in the Harberger model. A hallmark of Harberger's corporate tax incidence formula is its dependence on differences across sectors in elasticities of substitution between capital and labor. In contrast, the incidence of the corporate tax in the MPM may fall 100 percent on capital regardless of sector differences in substitution elasticities. The difference between the two models in the deadweight loss from corporate taxation is also striking. Using the Harberger - Shoven data and assuming unitary substitution and demand elasticities, the deadweight loss is over ten times larger in the CES version of the MPM than in the Harberger Model. Part of the explanation for this difference is that in the Harberger Model only the difference in the average corporate tax in the two sectors is distortionary, while the entire tax is distortionary in the MPM. A second reason for the larger excess burden in the MPM is that the MPM has a very large, indeed infinite, substitution elasticity in demand between corporate and noncorporate goods; in contrast, applications of the Harberger Model assume this elasticity is quite small.

The Silent Majority: Private U.S. Firms and Financial Reporting Choices

Abstract: We provide new evidence on the production of audited GAAP financial statements by large U.S. privately held firms. We find that over 60% of these firms, which control $4 trillion of assets, do not produce audited GAAP financial statements. Using across industry, within industry, and within firm tests over time, our analyses reveal that several important characteristics — such as profitability, firm age, growth, ownership changes, and presence of intangibles — partially explain this variation. These findings are consistent with financial statements reducing information asymmetry and serving a stewardship role. However, economically substantial variation remains unexplained by traditional variables. Our findings suggest that incomplete contracting and alternative mechanisms, such as relationships and tangible assets, are useful alternatives to producing audited GAAP financial statements, even for large firms. Our study informs researchers, standard setters, and regulators on the actual use of audited GAAP financial statements in the broader U.S. economy and raises additional questions for future research.

The Silent Majority: Private U.S. Firms and Financial Reporting Choices

Abstract: This study uses a comprehensive panel of tax returns to examine the financial reporting choices of medium‐to‐large private U.S. firms, a setting that controls over $9 trillion in capital, vastly outnumbers public U.S. firms across all industries, yet has no financial reporting mandates. We find that nearly two‐thirds of these firms do not produce audited GAAP financial statements. Guided by an agency theory framework, we find that size, ownership dispersion, external debt, and trade credit are positively associated with the choice to produce audited GAAP financial statements, while asset tangibility, age, and internal debt are generally negatively related to this choice. Our findings reveal that (1) equity capital and trade credit exhibit significant explanatory power, suggesting that the primary focus in the literature on debt is too narrow; (2) firm youth, growth, and RD and (3) many firms violate standard explanations for financial reporting choices and substantial unexplained heterogeneity in financial reporting remains. We conclude by identifying opportunities for future research.