Ph.D., University of Chicago
Expertise: Corporate Finance.
Courses frequently taught: Corporate Finance
Dr. Yaari is co-founder of the Multinational Finance Society and the Israel Center for Social Progress. He is a co-author of papers published in Advances in Futures and Options Research, Advances in Investment Analysis and Portfolio Management, Applied Mathematical Finance, Eastern Economic Journal, European Journal of Finance, Financial Management, the Financial Review, International Journal of Finance, Journal of Banking and Finance, Journal of Economics and Business, Journal of Finance, Journal of Financial Research, Journal of Fixed Income, Journal of Law and Economics, Journal of Portfolio Management, Journal of Risk and Insurance, Multinational Finance Journal, National Tax Journal, and Research in Finance. He is a contributor to an edited collection entitled FX: Managing Global Currency Risk. The focus of his current research is how to measure the firm’s free cash flow and how to quantify the net social value of corporate acquisitions.
I. Corporate Finance with Personal Taxation
Dr. Yaari’s research in corporate finance extends the M&M theory by modeling the economic effects of U.S. personal taxes on the behavior of corporations and their shareholders, and consequent effects on shareholders’ wealth. Findings have further implications for portfolio management and public policy. The flavor of Dr. Yaari’s joint research in this area is conveyed by the following contributions listed in chronological order:
- Disproving the dominant academic view that retention is tantamount to tax avoidance by demonstrating that current price appreciation in anticipation of increased future dividends would reflect a commensurate increase in future dividend tax payments. Moreover, share trading in the presence of capital gains tax (CGT) would increase the personal tax burden.
- Deriving the conditions under which the dividend tax affects the firm’s cost of capital and investment opportunities.
- Deriving a post-personal-tax share valuation formula that accounts for the impact of CGT and its deferred realization.
- Deriving a valuation formula for proprietorships parallel with that of corporations and analyzes the inter-sectorial disparity of tax burden and resource misallocation.
- Deriving a formula for calculating the effective rate of CGT under deferred share trading.
- Analytically showing how the CGT creates a dual share-price path over the dividend cycle, a previously unknown cause of a bid-ask price spread.
- Deriving a time-consistent share valuation formula for a corporation that follows a perpetual distribution of earnings via stock repurchase.
- Analytically demonstrating the adverse effects of inflation on current share prices if CGT is based on nominal rather than real gains, or if tax brackets escalate with inflation (two separate studies).
- Deriving a valuation formula for the Safe Harbor Tax Benefit Transfer Lease law (repealed since).
- Analytically showing how the impact of personal taxes prevents fair enforcement of the Fair Rate of Return Doctrine defining the treatment of regulated public utilities.
- Contrary to the accepted view, proving that tax-sheltered retirement plans should avoid rather than seek growth stocks.
- Deriving quantitative rules for optimal diversification of a tax-sheltered equity fund.
- Analyzing the way by which preferential tax treatment of market-purchased insurance discourages self insurance.
- Proposing, testing, and confirming a theory by which personal tax avoidance turns corporate acquisitions into a profitable financial arbitrage, invisibly paid for by taxpayers at large.
- Theoretically providing that the impact of personal taxes can be readily used by a closed-end investment company to raise the value of its own shares above the value its stock portfolio.
- Turning the Pecking Order hypothesis of financial leverage into a quantitative decision model that accommodates any static tradeoff in a stochastic dynamic framework.
II. Markets and Institutions:
The following sample of contributions is contained in Dr. Yaari’s joint papers dealing with financial markets and institutions:
- Empirically demonstrating that the interest rate ceiling imposed on commercial bank deposits following the Great Depression was largely ineffective when measured against its legal intent of curbing bank costs to promote solvency.
- Theoretically explaining why the large pension plans typical of companies dominated by a labor union have a low funding ratio and a high risk of default.
- Using a dynamic optimization model demonstrating that an interior corporate financial leverage is consistent with a market made up of diverse investors holding portfolios of diverse debt-equity ratios.
- Demonstrating that, in the presence of transaction costs, in-the-money American options written on foreign exchange are likely to offer gainful opportunities in early exercise if they mature in less than 45 days.
- Based on simulated data, arguing that term-structure estimation methods should be ranked by their power to estimate forward rates, not by their power to explain prices.
- Empirically demonstrating that stock portfolio diversification across developed and emerging markets may lose rather than gain by hedging the foreign exchange risk across currencies.
- Developing a discrete arbitrage model for pricing currency options, which includes data-based transaction costs in adjusting the replicating asset portfolio; treating the trading interval as endogenous and independent of the investor’s risk preference.
- Developing a discrete model for pricing options with transaction costs to determine the maximum price charged by an intermediary in a non-auction market where transaction costs induce less frequent trading and, therefore, a multinomial distribution of asset returns.
- Theoretically demonstrating how to lower the cost of immunizing fixed-income contracts in a multi-currency setting by matching asset and liability durations in the portfolio as a whole.
- Through simulation of real data, revealing the conditions for efficient immunization of fixed-income contracts in a multicurrency setting by matching the overall asset and liability durations.
- Empirically demonstrating that dual market stock listing is consistent with unidirectional flow of information.
- Deriving the conditions under which a traditional market of discrete trading, which relies on dealers or exchange-scheduled sessions, is superior to a continuous non-dealer electronic market.
- Using an event study to show that competitive IPOs, conducted as a Dutch auction that is open to the public, are economically superior to traditional fixed-price IPOs.
- Combining an event study and simulation to demonstrate that margin requirements based on a more accurate measurement of default risk lower the probability of default without lowering liquidity.
Dr. Uzi Yaari, professor of finance at the Rutgers School of Business—Camden; co-founder, Multinational Finance Society and the Israel Center of Social Progress. He can discuss:
Corporate and Private Finance: