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Updated 11:00 AM May 8, 2006




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Scholarship & Creativity
Highly taxed stocks get higher returns

Investors who own stocks with higher tax rates also get higher returns, says a U-M finance professor.

Using data covering tax burdens on a cross-section of equity securities between 1927-2004, Clemens Sialm of the Stephen M. Ross School of Business found a strong link between risk-adjusted stock returns and effective personal tax rates (total tax paid divided by net taxable income before taxes).

Specifically, a one-percentage point increase in the effective tax of an equity portfolio increases the average return of the portfolio by 1.54 percentage points.

"Consistent with tax capitalization, stocks facing higher effective tax rates tend to compensate taxable investors by generating higher before-tax returns," Sialm says. "The average returns of highly taxed securities tend to be high because their valuation levels are relatively low. Thus, taxes tend to depress asset valuations, resulting in higher average before-tax returns."

Sialm's study shows that effective tax burdens have varied significantly over time. For example, the rates on the market portfolio of common stocks exceeded 25 percent in 1950, but dropped to less than 5 percent in 2004.

According to Sialm stocks that distribute a greater proportion of their total returns as dividends tend to be taxed more heavily than stocks that distribute a smaller fraction of dividends. Dividend-paying stocks face, on average, an effective tax rate nearly three times higher than the effective tax rate of stocks that do not pay dividends.

These highly taxed, dividend-paying securities, however, tend to pay significantly higher returns. The average return spread between high-dividend and no-dividend stocks is 4.55 percent, while the spread is 3.63 percent between all stocks that pay dividends and those that do not.

Sialm says that although dividends are highly correlated with the effective tax rate, it is the latter and not the former that is the driving force behind the higher returns.

Is competition pushing scientists too far?

A new study suggests that the competitive nature of research fosters an environment where scientific misbehavior takes place far more often than the misconduct that makes headline news. And because scientific misbehavior involves more mundane decisions and actions, it may be easier for researchers to look the other way.

The study, recently published in the premier edition of the Journal of Empirical Research on Human Research Ethics, used focus groups and a Web-based survey to find out from researchers what kinds of behaviors they find most troubling and how often they occur.

"We were a bit surprised when we first heard researchers reporting what they described as rather routine misbehaviors, but as our study went on we kept hearing the same stories, confirming that these kind of things are an everyday part of research," says co-author Raymond De Vries, associate professor of medical education and a member of the Bioethics Program.

The study used both qualitative and quantitative measures to ask those who know science best—its researchers—to describe the behaviors they regard as most threatening to the integrity of their work. Examples of misbehavior in these areas include such things as deciding what to do if one's own results can't be duplicated and manipulation of the review system.

Focus group participants revealed that many of the daily problems scientists encounter are related to the difficulties of working on the frontier of knowledge, where competition, the drive to succeed and ambiguity reign. The use of new research techniques and the generation of new knowledge create difficult questions about the interpretation of data, the application of rules and the proper relationships with colleagues, the authors say.

De Vries says results of the focus groups were used to design the quantitative portion of the study. Again, few acknowledged committing or observing the three most serious types of scientific misconduct—falsification, fabrication and plagiarism—while they did report numerous instances of scientific misbehavior.

De Vries and his colleagues conclude that it is the ambiguities and everyday demands of scientific research that compromise the integrity of research.

"This paper, along with some others, shows that unbridled competition is not good and we need to think of the conditions of science and to be more public in how we deal with these issues," De Vries says

Child abuse and neglect awareness needed in dental community

The results of a study conducted by a second-year student at the School of Dentistry may prompt dentists, hygienists and other oral health care professionals to pay closer attention to their youngest patients, who could be victims of child abuse and neglect.

John Thomas says dental care providers and students are likely to encounter child abuse victims during their professional lives. The results of his study, however, revealed that not all providers and students have the necessary knowledge to fulfill their legal and professional responsibilities in reporting suspected cases.

"Research shows that parents or guardians who abuse their children might change their child's pediatrician, but they are likely to continue visiting the child's dentist," he says. "These visits offer dental providers opportunities to recognize and report suspected cases of child maltreatment."

Thomas says more than 82 percent of dental professionals knew they had to report suspected cases of child abuse and neglect, compared to 72 percent of dental and hygiene students. But only 28 percent of dentists and hygiene professionals, and only 18 percent of students, knew where to report suspected cases of child abuse and neglect.

"In some cases, oral health care professionals wonder if reporting suspected cases will be handled anonymously," he says. "Others wondered if reporting suspected cases of child abuse or neglect will adversely affect them professionally or personally. In other instances," he added, "some might even fear to be stigmatized if they report these cases or feel that they do not know enough to report instances of abuse."

Thomas's work won third place in the American Association of Dental Research National Student Research Group Caulk/Dentsply Competition this spring. In addition, articles detailing his work are scheduled for publication later this spring in the Journal of Dental Education and later this summer or fall in the Journal of Pediatric Dentistry

Study finds gender differences in political interests

Men are more likely to find politics exciting while women balance their political interest among several factors, including having a personal stake in government affairs, says a U-M instructor.

"Although we traditionally think of men as more engaged in politics, this study shows that, in fact, men and women may just have different ways of thinking about political interest," says Debra Horner, a graduate instructor in the Department of Political Science. "By differentiating between dimensions of political interest such as a taste for politics or feelings of stake in the system, we can understand more about gender differences in both political attitudes and in participation."

Horner presented her findings from a new study at the annual Midwest Political Science Association conference April 20 in Chicago.

Horner studied responses about interest in government and public affairs, including items pertaining to three categories: a taste for politics, which includes those who think their interest in politics is legitimate and entertaining; a sense of stake in political outcomes, which gauges how politics affects one personally; and a desire for oversight of public officials, which involves citizens monitoring what happens in government affairs.

Gender differences in taste and stake affected patterns on how men and women participate in politics. For example, not only are men more likely to report higher levels of taste, but it is the most important component in determining male voter turnout.

Meanwhile, women's turnout is predicated on both elements of taste and stake, she says. "In other words, while it's primarily men's enjoyment of politics that encourages them to vote, women's interest as both enjoyment and self-interest promotes their voter participation," Horner says.

When asked a general survey question about interest in politics, nearly 42 percent of men responded they are "very interested" in government and public affairs, compared with 34 percent of women.

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