Response to Roderick Nash´s Essay Island Civilization A...

In Roderick R. Nash’s essay â€Å"Island civilization: A vision for human occupancy of earth in the fourth millenium† he quotes â€Å"Of course a change like this one [Island civilization] involves compromises with human freedom.† Nashs plan for the future is to make self-sustaining â€Å"islands† of civilization. These civilizations would be clusters of the population, and quite similar to cities. His plan also relies on advanced technology that would not harm the Earth and that the â€Å"islands† remain isolated from each other. All food production, manufacturing, sanitation, and other services would take place directly within the civilization. This would mean that we as humans would lose many rights that we have had for hundreds of years such as human†¦show more content†¦It would just all spiral out of control. Thats just the legal side of things, their is no doubt in my mind that people would break this law. Its if the government were to outlaw walking, we have been doing it for so long that it just wouldnt work. Nash explains that according to the terms of a new ecological contract â€Å"we would surrender some freedoms like birding cows on the open range or living in a sprawling ski resort.† He says that if you wanted to live in the snow you would have to live somewhere in the mountains but according to zoopla.com where they had a research project on 2000 British citizens it sowed that on average they move 8 times in their lives. So what would happen in Nashs Island civilization? Would are freedom to move be denied? Children would live in the same environment all their lives, personally on of the reasons I love California is if you want to you can go snowboarding in the morning and have a bone fire on the beach at night. People are not going to be ok with giving up a lot of our freedom in order to save wildlife. I honestly think that in another thousand years, society will be more high tech than we could ever imagine but little to no real wild life will be found. As unfortunate as th is may be, I think it is what our society

Accounting Information System - 1944 Words

Table of contents No. | Title | Page | 1 | Question 1 | 2-3 | 2 | Question 2 | 4-5 | 3 | Question 3 | 6-7 | 4 | Bibliography | 8 | 5 | CD | 9 | 6 | Turnitin report | 10 | Question 1 Mrs. Sally runs a bakery business, Sweet Delight which caters to both individuals and businesses. However, there are some flaws found in her current sales system that caused a loss of significant amount of money. Hoping that she’s able to improve her cash flow, there are some weaknesses highlighted in her current practice. i) Poor online ordering. Having an online catalogue is beneficial for businesses today. It gives the owner slight edge and greater opportunity against their competitors. Most customer nowadays prefer online†¦show more content†¦The need to settle off the overwhelming orders might affect the next orders in line as they are taking longer times to settle the current orders. They might not be able to finish the orders on the agreed date. iii) Credit collection practice. An invoice is a document that shows how much a buyer owes to the seller. Sales invoice indicates that the sale has been done but the company has not received the cash yet (Conjecture Corporation, 2013). Mrs. Sally prepared her customer invoices at the end of each month. This method is considered as inefficient as taking a longer time to issue invoice will result in poor cash flow. The income statements may show a high sales but the company cash flow is affected due to increase in debtors account. Furthermore, the company also might have risk of bad debts. For instance, when Mrs. Sally issues a customer an invoice at the end of this month, the customer might not pay her right away instead they pay at the end of the following month of invoice date. Question 2 By analyzing the weaknesses in Mrs. Sally current practices, there are several improvement that can be done to enhance the performance of the business. i) Set up e-payment processing network Connecting a business website to online payment processing network is no easy task and beyond the skill and technical resources of most business operating online. Instead, there is easy and inexpensive way for getting business transactions onlineShow MoreRelatedAccounting Information System1811 Words   |  8 PagesDiscussion I. I. Accounting information system is a combination of collecting, recording, storing, and processing data of a business. The advancement of technology initiates business firms to seek for new innovations that would greatly help in business functions. As what Dillon and Kruck (2004) had explained, â€Å"at the start of the 21st century, business organizations are facing an explosion of global competition and innovation and facilitating this explosion is the increasing ability of organizationsRead MoreQuestions On Accounting Information Systems2346 Words   |  10 PagesACC539-201560 ACCOUNTING INFORMATION SYSTEMS – ASSIGNMENT 1 The abovementioned has been arranged in two parts on the same document, first Question 1 then Question 2 follows below that: QUESTION 1: Question 1: explanation of how implementation of cloud accounting information system in an organisation relates to corporate straegy and value chain. Risks and benefits are explored. Introduction We seek to investigate how the implementation of a cloud accounting information system relates to anRead MoreAccounting Information System3639 Words   |  15 PagesExecutive Summary Accounting information system is an extremely important role in the enterprise management. As technology advances, the system software is constantly improving, constantly enhance the function of the system, thus improving the efficiency of enterprise management. Accounting information system network and multi-function trend is more obvious, how is the fastest way to management to provide the latest information to help decision-makers analysis, forecasting, decision-making, improveRead MoreAccounting Information Systems7237 Words   |  29 PagesOne As accounting students we have studied a variety of accounting areas involving financial and taxes. The accounting information course appears to be a course that heads in a different direction then what we as students have become accustomed to. Speaking for myself I have always been drawn to the accounting field because it is a black and white area. In other words, there it is organized and has right and wrong answers, this leaving out the gray areas between right and wrong. Accounting informationRead MoreThe Implementation Of Accounting Information Systems1037 Words   |  5 Pagesthe implementation of accounting information systems, accounting and corporate accounting management environment has undergone great changes, internal control mechanisms and instruments manual accounting system was not available for the network environment, the establishment of information systems and accounting internal control system adapted to become enterprises need to solve the problems. In the 1990s, with the development of global economic integration and information technology. Internet,Read MoreAccounting Information System (Ais) - a Conceptual Study1986 Words   |  8 PagesISSN:-2230-7850 Research Papers ACCOUNTING INFORMATION SYSTEM (AIS) - A Conceptual Study Dr.Rambabu Gopisetti Assistant Professor, Department of Commerce, Telangana University, Dichpally, Nizamabad, A.P. 503322 G.Srinivas Academic Consultant, Department of Commerce, Telangana University, Nizamabad, A.P. ABSTRACT Managerial decision making normally relies upon an effective information system. At present many firms are using accounting software to prepare accounting reports very quick, perfectlyRead MoreThe Adoption Of Cloud Based Accounting Information System1784 Words   |  8 Pagesreport is to critically analyze the adoption of cloud based accounting information system (AIS) in business organizations and also its challenges and benefits of cloud based environment. Cloud accounting (SAASU 2014, para 3) is also called ‘online accounting’, which provides the same service as accounting software and data is securely stored on servers known as the cloud. According to Emma Watkins (Demand Media 2014, para 1), â€Å"cloud accounting is the use of computer hardware and software applicationsRead MoreThe Adoption Of Cloud Based Accounting Information System2021 Words   |  9 Pagesreport is to critically analyze the adoption of cloud based accounting information system (AIS) in busin ess organizations and also its challenges and benefits of cloud based environment. Cloud accounting (SAASU 20124, para 3) is also called ‘online accounting’, which provides the same service as accounting software and data is securely stored on servers as known as the cloud. According to Emma Watkins (Demand Media 2014, para 1), â€Å"cloud accounting is the use of computer hardware and software applicationsRead MoreAccounting Information System 53570 Words   |  15 Pages1450-223X Issue 4 (2009), pp36-44  © EuroJournals Publishing, Inc. 2009 http://www.eurojournals.com/ajsr.htm Accounting Information Systems (AIS) and Knowledge Management: A Case Study Zulkarnain Muhamad Sori Department of Accounting and Finance, Faculty of Economics and Management Universiti Putra Malaysia Abstract This study seeks to examine the use of Accounting Information Systems (AIS) by ZBMS Sdn. Bhd., and it’s contribution to the knowledge management and strategic role of the organisationRead MorePayroll Fraud And Accounting Information Systems1391 Words   |  6 Pages Payroll Fraud and Accounting Information Systems Stephanie Ace and Nisha Selvam Payroll systems have evolved tremendously as software and computerized systems have spread throughout the workplace. While this has alleviated some of the hassle involved with processing payroll, it has also opened up a world of potential issues. Oftentimes, systems that appear both effective and efficient can become vulnerable if placed in the hands of dishonest employees or employers

Hospitals And Consent To Treatment Free Essays

string(132) " cumulative or not but it would seem that more recent authority has settled on the fact that the four elements are not cumulative \." Introduction The Law Commission in 1995 recommended an overhaul of the system for the admission to hospital, treatment and detention of those who lack the capacity to decide their own fate . Ten years later the Mental Capacity Act 2005 received royal assent and came into force in 2007 to right the balance between doctor and patient by, fundamentally, enabling individuals with mental disorders to make their own choices in the majority of cases and to place the onus and burden of proof on doctors and others who wish to invoke non-consensual treatment against their wishes . Alongside other notable acts which constitute the legal environment such as the Mental Health Act 2007 there are now strong legal safeguards in place to protect against the horrific abuses of the past. We will write a custom essay sample on Hospitals And Consent To Treatment or any similar topic only for you Order Now One aspect of the treatment of such individuals which proved to be the least contentious was the ‘functional’ test for determining capacity which survived the 2007 Act intact. The ‘functional’ test was discussed extensively in Re C , a case which drew together the strands of the test and indeed proved to be the foundations of the 2005 Act’s s.3 and the presumption that patients have capacity unless proved otherwise under s.1 . Thorpe J, in upholding a man who had been diagnosed as suffering from paranoid schizophrenia’s right to refuse treatment for a gangrenous leg, found clear precedent in two powerful cases from 1993 and observed in his judgement his impressions of the man who, despite delusions of a stellar medical career, was deemed capable to refuse the proposed treatment: â€Å"C. himself (the patient) throughout the hours that he spent in the proceedings seemed ordinarily engaged and concerned. His answers to questions seemed measured and generally sensible. He was not always easy to understand and the grandiose delusions were manifest, but there was no sign of inappropriate emotional expression. His rejection of amputation seemed to result from sincerely held conviction. He had a certain dignity of manner that I respect.† From the influential judgements of Thorpe J in Re C and B v. Croydon District Health Authority a three-stage test was elicited by the Law Commission which found its way into the 2005 Act : Can the patient take in and retain the informationDoes he/she believe that informationCan he/she weigh that information and make a decisionThe functional test is a modern restatement of the test at common law and continues to be the foundation upon which a test of competency regarding the treatment of a mentally disordered patient is made with recent cases of capacity following the script of the Act strictly . But is this test necessarily the best despite the courts’ unanimous application and the lack of disputed cases since 2005This essay will critically discuss the above statement by analysing the functional test’s development both pre and post Mental Capacity Act 2005 in part 1 and identifying the key weaknesses in part 2. This essay will argue that the functional test to a signifi cant extent provides protection against arbitrary, non-consensual treatment and despite key weaknesses still surpasses the alternatives identified by the Law Commission . Part 1 1.1 The functional test As noted the functional test is nothing new to medical law and the Mental Capacity Act 2005 simply crystallised into statute what had been prevalent in case law for some years before with the cases of In re T. (Adult: Refusal of Treatment) and Re C proving to be particularly influential in shaping the functional test within the 2005 Act . Section 1 of the 2005 Act provides that a patient is presumed to have mental capacity unless proven otherwise. This is, in other words, a â€Å"rebuttable presumption† which arises and acts a safeguard: arguably a powerful disincentive against the â€Å"non-consensual, arbitrary treatment† the statement refers to. Under the Act any such decision to refuse to consent to medical treatment must be dealt with on a balance of probabilities which is the civil standard and indeed a high barrier to cross . The onus of proof is squarely on the complainant unlike the situation previously at common law . Section 2 makes it clear that a personal will lack capacity if â€Å"at the material time† he/she is unable to make a decision because of an â€Å"impairment of, or a disturbance in the functioning of, the mind or brain† . Thus a person’s superficial attributes such as age or appearance will not be considered under this section and it is important to note that the â€Å"impairment† or â€Å"disturbance† referred to in s.2(1) can be permanent or temporary. Interestingly the Law Commission report points out that this â€Å"diagnostic threshold†, which requires a person to have a recognised mental disability, comes before the functional element which essentially dilutes any notions of a pure functional test . A good example of such a temporary disorder was demonstrated in Re MB (An Adult: Refusal of Medical Treatment) where MB suffered from a phobia of needles which meant she refused any anaesthetic during a proposed caesarean section which was thought vital to deliver her baby. The Court of Appeal (Civil Division) dismissed the woman’s appeal after the hospital obtained a declaration that doctors could perform a caesarean . Their Lordships observed that such a condition as s he had disabled her from making the decision and, furthermore, other temporary factors such as â€Å"panic brought on by fear† could â€Å"erode† the capacity to make any decision regarding medical treatment . The Act goes on under section 3 to specify the circumstances under which a person would not be able to make a decision for the purposes of section 2. With four conditions which comprise the heart of the functional test, a person cannot make a decision for himself if he/she is unable to â€Å"(a) understand the information relevant to the decision, (b) to retain that information, (c) to use or weight that information as part of the process of making the decision, or (d) to communicate his decision (whether by talking, using sign language or any other means)† . There is conflicting dicta regarding whether these elements are cumulative or not but it would seem that more recent authority has settled on the fact that the four elements are not cumulative . You read "Hospitals And Consent To Treatment" in category "Essay examples" Margaret Brazier and Emma Cave sum up the force of these key provisions well: â€Å"The 2005 Act directs that what must be assessed is essentially the patient’s capacity to understand what is at stake and act on that information.† 1.2 Case law Since the Mental Capacity Act came into force in October 2007 there have not been, within the specific context of treatment and decision-making capacity under section 3 of the 2005 Act, any disputed cases at all which would seem to suggest that the functional test is being adopted and applied consistently and confirms observations that â€Å"capacity is unlikely to be disputed unless others disagree with the outcome† . It is no surprise that of the cases which do cite section 3, which comprises the essence of the functional test, are very diverse including applications by local authorities on where mentally disabled individuals should live , the capacity of mentally disabled individuals to conduct litigation , applications by local authorities to declare that mentally disabled individuals could not consent to sexual relations and even one case which invoked the Family Division’s inherent jurisdiction to prevent the broadcast of a film and the publication of an article a bout an individual who had dissociated identity disorder and had consented to the film . In the UK then at this present time the problems to be elicited from the functional test are still on a more theoretical rather than practical level. This is an unfortunate development as litigation is often needed to fully understand statutory rules but, as has been pointed out by Mary Donnelly, pre Mental Capacity Act cases remain relevant and will be utilised in the following section to understand the weaknesses of the functional test now enshrined within the 2005 Act . Part 2: Discussion of the functional test 2.1 Weaknesses and discussion of the test As pointed out above it is to pre-2005 Act case law and theoretical problems we must look to in order to map out the weaknesses of the functional test and provoke robust critical discussion. Few authors have discussed these problems but Mary Donnelly’s influential article in the journal ‘Legal Studies’ in 2009 as well as her book of 2010 have both started to expose the practical flaws and weaknesses which are evident in the 2005 Act’s adoption of the functional test. A pilot study has also been conducted in England and Wales using the experience of 52 consultants in old age psychiatry which contains some valuable discussion of the Act and its early implementation . These weaknesses will be presented and discussed separately: (a) The influence of outcomes It is almost impossible to ignore the fact that outcomes will continue to influence the application of the functional test . This osmosis comes about because only when the outcome of a decision by a mentally disabled individual is challenged will the test come into operation in the context of treatment. Thus, being the raison d’etre of the litigation, it is not surprising to find that many judges, assessors and doctors can succumb to the temptation of disagreeing with an outcome which is undesirable despite the fixed intention of an individual. Margaret Brazier and Emma Cave rightly point out that despite Butler Sloss P warning in B v An NHS Trust that â€Å"it is most important that those considering the issue should not confuse the question of mental capacity with the nature of the decision made by the patient, however grave the consequences,† the same judge then paradoxically stated in Re MB that: â€Å"the graver the consequences of a decision, the commensurately g reater the level of competence is required to take the decision† . It is clear that despite the Law Commission’s rejection of an outcome-based approach it is naive to pretend that outcomes can be excluded from the often biased minds of doctors, assessors and even, it would seem, judges. (b) Irrational decisions Both Margaret Brazier and Emma Cave rightly identify that the case of Re C suggests that despite an individual holding strange beliefs or exhibiting bizarre behaviour this should not automatically result in a finding of a lack of capacity to make a decision . As they go on to point out, however, there have been cases where the judge’s opinion of such bizarre beliefs has indicated a lack of capacity . One of the factors under s.3(c) maintains that the individual in question must be able to use and weigh information . Mary Donnelly points out that the ability to reason is an integral part of this factor and thus undermines the liberal account of capacity . Donnelly goes on to point out the case of South West Hertfordshire Health Authority v KB which provides a clear example of a case where a judge confused the ability to reason with the rationality of the decision itself. (c) Non-judicial assessment Donnelly also correctly points out that assessor’s, often individuals without legal training, are being delegated to carry out legally challenging assessments for capacity in a variety of circumstances . Furthermore, Donnelly concludes that assessors’ values and biases are influencing decisions being made which further reinforces the two points made above on outcomes-based decisions and rationality . (d) The role of undue influence The final weakness in the functional test which has been identified by Donnelly alone is that there is no satisfactory resolution of the influence of third parties on the will of the individual in respect of the functional test under section 3 of the 2005 Act . Despite there being a clear link between capacity and undue influence in other areas, for example testamentary dispositions, the 2005 Act does not properly address this issue. Conclusion In Conclusion the functional test, despite key weaknesses, protects mentally disordered people to a significant extent from arbitrary, non-consensual treatment. The test, now enshrined in the 2005 Act, has not been properly litigated yet: there have, in the four years in which the Act has been operational , been no cases which have invoked the functional test in the area of consent to medical treatment. This could be, as noted above, evidence that the presumption in favour of capacity is working or simply evidence that there have been fewer challenges to capacity in recent years. Further evidence is required to evaluate the lack of cases within this area. Furthermore, the test is also not a purely functional one as there operates a diagnostic threshold which comes into play before it and is an important obstacle for anyone to overcome and which inevitably limits the protection which the test provides . What is clear from the pre-2005 Act case law is that there are undeniable weaknesses within the ‘functional’ test which undermine the protection it undoubtedly offers to individuals with mental disorders. The obvious influence of outcomes upon decisions of capacity, the confusion of the ability to reason with the rationality of the decision itself by assessors and judges alike, the unsatisfactory undue influence situation and the non-judicial assessments being conducted by those without legal training all point to a system which is far from perfect but which is better than a purely status based or outcome based system. Bibliography 1.0 Books Brazier, Margaret Cave, Emma (2007) Medicine, Patients and the Law (4th ed) Penguin Books: London Donnelly, Mary (2010) Healthcare Decision-Making and the Law: Autonomy, Capacity and the Limits of Liberalism Cambridge Uni Press: Worldwide 2.0 Journals D. Carson, â€Å"Disabling Progress: The Law Commission’s Proposals on Mentally Incapacitated Adults’ Decision-Making† (1993) J.S.W.F.L. 304. Donnelly, Mary (2009) ‘Assessing Capacity under the Mental Capacity Act 2005: Delivering on the Functional Approach?’ Legal Studies 29 p.464 Fulford, Bill (2010) ‘A Pilot Study of the Early Implementation of the Mental Capacity Act 2005 in England and Wales’ Medicine, Science and the Law 50(3) pp131 – 135 Keywood, Kirsty (2010) ‘Vulnerable Adults, Mental Capacity and Social Care Refusal’ Medical Law Review 18(1) 103 – 110 at p.103 3.0 Reports Law Commission Report no.231 Mental Incapacity (1995) HMSO 4.0 Statutes Mental Capacity Act 2005 Mental Health Act 2007 5.0 Cases A London Local Authority v JH [2011] EWHC 2420 (Fam) Airedale N.H.S. Trust v. Bland [1993] A.C. 789 B v An NHS Trust [2002] All ER 449 B v. Croydon District Health Authority (1994) 2 2 B.M.L.R. 13; Banks v Goodfellow (1870) 5 QB 549 D Borough Council v B [2011] EWHC 101 (Fam) E v Channel Four Television Corp [2005] EWHC 1144 (Fam) F v West Berkshire Health Authority [1989] 2 All ER 545 F v Riverside Health Trust (1993) 20 BMLR 1 HL v UK (2005) 40 EHRR 32 In re T. (Adult: Refusal of Treatment) [1993] Fam. 95 NHS Trust v T (Adult Patient: Refusal of Medical Treatment) [2004] EWHC 1279 Re R (A Minor) (Wardship: Medical Treatment) [1991] 4 All ER 177; Re W (A Minor) (Wardship: Medical Treatment) [1992] 3 WLR 758 Re MB (An Adult: Refusal of Medical Treatment) [1997] 8 Med LR 217 Re C [1994] 1 All ER 819 per Thorpe J at p.294 Riverside NHS Mental Health Trust v Fox [1994] 1 FLR 614 South West Hertfordshire Health Authority v KB South West Hertforshire Health Authority v KB [1994] 2 FCR 1051 Tameside and Glossop Acute Services Trust v CH [1996] 1 FLR 762. T v T [1988] 1 All ER 613 and Re B (A Minor) (Wardship: Sterilization) [1987] 2 All ER 206, HL V v R [2011] EWHC 822 (QB) W (Children), Re [2008] EWHC 1188 (Fam) How to cite Hospitals And Consent To Treatment, Essay examples

Cost of Equity and Capital Structure free essay sample

In January 2007 the UK adopted the globally successful real estate investment trust (REIT) regime, allowing real estate firms to adopt the REIT status with the benefit of immediate exemption from corporate tax. This study observes 14 UK REITs and 18 comparable conventional UK real estate firms during the years 2001-2011 to scrutinize in how far the corporate tax exemption affects cost of debt and equity and eventually capital structure itself. I employ a difference-in-differences (DiD) analysis, whereby I contrast changes in several variables of REITs and Non-REITs in the pre- and post-treatment phase. This setup enables me to establish empirical results of the given relationship in the absence of changes in exogenous determinants. I find that the cost of debt of REITs rises by just above 30 percent compared to that of Non-REITs. Moreover, the results show that whereas REITs financed a 21 percent increase in total assets with an almost 50/50 debt to equity ratio, Non-REITs financed a 41 percent increase in total assets with 70/30 debt to equity. This confirms the expectation that REITs use relatively less debt because of the missing tax incentive and higher implied costs of debt. However, I do not obtain significant results from the DiD analysis, that this is caused by this treatment. Key words: REITs, corporate tax exemption, security issuance decision Research theme: Cost of debt, cost of equity and capital structure Supervisor: Dr. Henk von Eije 1. Introduction Capital structure theory plays a decisive role in the corporate and financial world, and although it has been subject to a great amount of academic research, the relationship of cost of capital and capital structure remains an unsolved puzzle for financial economists (Howe, Shilling (1988), Maris, Elayan (1990)). Furthermore, most of the existing research results in abstract theories and concepts with empirical proof lagging behind the theoretical research, as the included variables are often difficult to isolate and to observe. (Titman and Wessels, 1988) This study aims to shed light on the impact of the exemption of corporate tax on the cost of debt relative to the cost of equity and eventually on capital structure by analyzing and comparing REITs to conventional real estate firms. REITs are chosen as the center of this study, as they allow a type of natural experiment. The essential aspect to this set-up is that once conventional real estate firms start to function under the REIT regime, they become tax-exempt, which is expected to cause a sudden increase of their cost of debt component due to the now missing tax shield, previously imposed by the debt. This is derived from the calculation for the weighted cost of capital (WACC). That is the sum of the cost of equity (Re) multiplied with total equity (E) over total assets (A) plus the cost of debt (Rd) multiplied with one minus the corporate tax rate (T) and the ratio total debt (D) over total assets. This study aims to examine whether and by how much the cost of debt and equity change after tax exemption and if so how this affects in turn the capital structure of a firm. This leads to the following research questions: 1. Does tax exemption affect the cost of debt and equity and if so, by how much? 2. Does the capital structure change due to a rise in the cost of debt relative to the cost of equity? As I elaborate in the literature review, I expect that the cost of debt of REITs rises by the size of the tax shield, whereas the cost of equity remains constant. Furthermore, I expect that REITs use relatively less debt for financing, because of the relatively higher cost of debt. Already in 1958, Modigliani and Miller have pointed the discussion of capital structure towards the cost of debt and equity. According to their first proposition, in a world of no corporate taxes and with perfect markets, financial leverage has no effect on a firm’s value. In their second proposition, they state that the cost of equity equals a linear function defined by the required return on assets and the cost of debt (Modigliani and Miller, 1958). As negative aspects of debt, e. g. ersonal tax loss and bankruptcy costs however do exist in reality, Miller (1977) elaborates that leverage will either have no or a negative effect on the firm’s value, hence untaxed firms should favor equity. Nevertheless, firms have used leverage even before corporate taxes have been introduced (Maris and Elayan, 1990). This implies the existence of some market imperfec tions, which benefit the use of debt financing, thus enable a trade-off of the cost and benefits of debt resulting in an optimal capital structure, where marginal cost equal marginal benefits. In general, the majority of existing research is set up by taking the ecurity issuance choice as the dependent variable and then tests empirically for determinants based on data from one type of companies. It needs to be taken into consideration that security issue decision and capital structure are not the same, but that the latter is the result of all previous security issue decisions. This study differs in two major ways from the existing research. First, by investigating the changes in capital structure, this study aims at explaining long-term changes imposed by a sustained change in the independent variable of capital structure. This contrasts to other studies that connect each individual security issuance to the relative conditions and determinants. Secondly, the study centers the analysis on the comparison of REITs to conventional, non-REIT real estate companies. Given the uncertainty of the impact of the various variables on capital structure, contrasting these two data sets with the only distinctive difference of having different relative costs of debt and equity, enables one to investigate the impact of the independent variable while excluding other exogenous factors. The sample includes two groups of companies with observations from 2001 until 2012. Group 1, the treatment group, consists of 19 REITs in England and group 2, the control group consists of 31 conventional real estate firms. The REIT regime was introduced in 2007, thus the observations consist of six years without and six years with the REIT status for group 1 and twelve years without the REIT status for group 2. With their almost unique characteristics of being tax-exempt as well as having to distribute at least 90% of their operating gains, REITs experience significantly different conditions concerning capital structure compared to their industrial counterparts. The regulatory structures impact the security issue decisions in two related and important ways. The tax incentive of issuing debt is eliminated, which increases the cost of debt, thus lowers the REITs access to cheap funds. Moreover, REITs actually depend more on raising funds via external markets, as they have to distribute 90 percent of internally generated funds. The remainder of this study is structured as follows. In the next section, I elaborate on the structural differences of REITs in comparison to conventional firms, which are seen as relevant for this study. The literature review providing a detailed overview of previous research on capital structure and the impact of cost of debt and equity follows. Subsequently, I will describe the applied difference-in-differences method, my sample as well as the data collection and the regression models. The results are discussed in the fifth section. The final section summarizes and concludes. 2. REITs The UK REIT regime was launched on January 1st, 2007 and is set out in Part 4 of the Finance Act 2006. REITs are globally known and understood as having highly tax efficient structures for investment in real estate. At the moment, 24 companies qualify as and have elected the REIT status in the UK. Due to the need to have a complete set of data for the range of 2000 until 2012 and especially six years of data as a REIT, only 14 out of the 24 companies are selected in this study. This section serves to review the for this study relevant structural characteristics of REITs. In general, the UK REIT regime consists of listed property rental companies that own and manage a portfolio of commercial and retail real estate with the goal to earn a profit for shareholders. Two important tests to assure this guideline are the profit and asset test. According to the profit test, at least 75 percent of total profits must arise from the tax-exempt business, the rent income from its properties. Total profits here is gross profit before taxes,excluding any gains and losses on disposal of assets outside of the ordinary REIT business. Furthermore, the value of this tax-exempt business needs to account for at least 75 percent of the firm’s total assets to fulfill the asset test. Several formal requirements exist and demand a firm to be solely resident in the UK for tax purposes, be neither an open-ended investment nor close company, have a listing on a recognized stock exchange and have no shareholder own more than 10 percent of shares. The ‘close company’ condition prevents companies with less than five different owners to become REITs, whereas the open-ended investment company simply possesses a different corporate structure (Deloitte, 2012). After a real estate firm officially adopts the REIT status, several effects come into place. The most important effect is that REITs are tax-exempt but have to distribute at least 90 percent of their income as calculated for tax purposes within 12 months after the end of the accounting period. This reduces the ability of financing via internal funds significantly. The intention of tax-exemption is to replicate the tax treatment of direct investment in property and eliminate double taxation, both on corporate and shareholder level. Moreover, REITs are only allowed to dispose of up to 50 percent of existing assets within a five year time frame, which further restricts financing possibilities. Whereas requirements for a maximum debt-to-equity ratio exist in several other countries to disable extreme leveraging, the UK REIT regime commands REITs to have a gross profit-financing costs ratio of at least 1. 25, assuring overall positive operating profits. This shall prevent situations, where REITs distribute almost no taxable dividends because their operational profits are considerably reduced by high financing costs. However, breaching this requirement does not remove the REIT status but rather creates a tax charge on the relevant amount of debt to secure tax income for the government (Deloitte, 2012). In 2012, several changes to the REIT regime have been passed including the elimination of the entry charge, easing the profit-financing costs ratio as well as allowing the listing on more exchanges including AIM and Plus. Nevertheless, these changes came into effect after the last data observation and do not influence the current research. . Literature Review The aim of this study is to scrutinize the effect of tax exemption on the cost of debt and equity and in turn on capital structure. This section serves to provide a concise overview of the existing findings on capital structure, which are relevant for the comparison of REITs and their industrial counterparts. Eventually, I will demonstrate that despite the extensive amount of research, there is still a clear present need for empirical proof of the impact of cost of debt and equity on capital structure. This need results from the fact that REITs themselves and other tax-exempt corporation forms are still fairly new and hence under-researched. In addition, the unique setting of a sudden and drastic change in one determinant of capital structure allows a pre- and post-analysis of the significance of that variable that can offer new insights and can serve to confirm or reject existing models. The literature review is divided into two sections. First, the capital structure irrelevance introduced by Modigliani and Miller is discussed, as well as early research of Howe et al. (1988) and Maris et al. 1990), as both find that REITs are still highly leveraged contrary to their expectations. In the second part I will discuss the presently dominating theories describing the relevant determinants, the security issuance decision and their implications for the usage of debt by REITs. 3. 1 Capital Structure Irrelevance The first and second propositions from Modigliani and Miller are included into this analysis, because they form the basis of modern capital structure theory and are especially interesting as this study focuses on tax-exempt corporations, which is an essential aspect of their work. In general, Modigliani and Miller (1958) state that in a world of efficient markets with no taxes, bankruptcy costs, agency costs and asymmetric information, companies would experience capital structure irrelevance, implying that the value of the firm is not affected by the ratio of debt to equity. Examining REITs and their counterparts solely based on this work, one would expect a much lower leverage ratio for REITs, because the only difference appears to be the missing tax break. As demonstrated by Howe and Shilling (1988) and Maris and Elayan (1990), this is however not the case implying the existence of market imperfections beneficial to the use of debt. Howe and Shilling (1988) examine stock price reactions after announcements of new security issues. Whereas they expect a negative price reaction after debt issuance because of a net tax loss of corporate borrowing for untaxed firms, they find a positive, significant effect. Their conclusion is that signaling effects due to asymmetric information between managers and outsiders dominate over other determinants. The underlying idea is that information asymmetries exist between managers and outside market participants about the company’s prospects, which make it costly to issue equity. Overall, their findings suggest that relatively higher costs of debt do not necessarily hinder debt issuance. Maris and Elayan (1990) address the question of capital structure from a different perspective and scrutinize the effect of debt financing on a REIT’s cost of capital. Similar to Howe and Shilling (1988) they expect disadvantages in the use of debt due to personal taxes and the cost of financial distress. Nevertheless, they find that many REITs are highly leveraged. The authors argue that both agency costs and the leverage clientele effect might be reasons, but do not find significant results. The leverage clientele effect proposes that some firms use extreme leverage ratios to appeal to either highly risk-averse or risk-seeking investors and fully ignore the trade-off between the costs and benefits of debt. The effect will be addressed in the methodology again, because if it holds, the levels of cost of debt and equity are fully neglected and my assumptions will then not hold. The concept of agency costs, which is not solely a topic in corporate finance, was defined by Jensen and Meckling (1976). Agency costs occur due to an incomplete alignment of the agent’s and owner’s interest, in this case that of equity and bond holders. The authors argue that any firm that uses external finances will have an optimal capital structure with minimized agency costs. Maris and Elayan (1990) argue based on Jensen and Meckling’s findings, that there should be one optimal capital structure for REITs or other firms that are highly similar. 3. 2 Present Models Whenever a company is in need of financing, several decisions have to be made. In the following section, I will discuss the dominant theories influencing the security issuance decision, which are relevant for the comparison of REITs to their industrial counterparts. The trade-off theory introduces a very basic relation between bankruptcy costs and tax saving benefits. Kraus and Litzenberger (1972) explain that firms are financed via debt and equity. As the marginal costs of debt increase with higher debt levels, they suggest an optimal debt level where marginal benefit equals marginal costs. If this theory is valid, REITs will use far less leverage because the tax exemption significantly reduces the benefits of debt, whereas bankruptcy costs and hence the marginal costs of debt will remain at the previous level. The established pecking order model by Myers and Majluf (1984) describes that the costs of financing rise with increasing information asymmetries of in- and outsiders. Hence, internal financing is favored over debt, with equity financing only as a means of last resort. The pecking order model incorporates the essential characteristics of debt and equity. Whereas debt-holders have the right to money-fixed claims, equity holders only possess the right to a pro-rata share in the uncertain future of the company, hence they will require a risk premium compared to debt, implying that the cost of equity (Re) will always exceed the cost of debt (Rd). Several implications for REITs arise. First of all, internal financing is almost no option as REITs have to redistribute almost 90 percent of their operating income, which demands them to turn to external financing much more frequently. And although the cost of debt of REITs has risen, the pecking order model states that Rd will always be lower than Re, hence the use of debt might actually not change for REITs. Baker and Wurgler (2002) established the market timing hypothesis stating that capital structure is the result of continuous attempts by management to time the market. Companies would issue equity if market valuation of equity is high relative to book valuation and issue debt otherwise. This theory contradicts to some extent the general belief that an optimal capital structure exists per firm or at least per industry. According to Baker and Wurgler (2002) capital structure is simply driven by historic valuation and a firms’ market timing behavior, as firms merely seek the maximum market value possible from financing. Howton et al. (2003) find that the market timing model is far less evident for the case of REITs though, since the missing internal financing opportunities do not provide the luxury of being able to time the market. 4. Data and Methodology This study builds on contrasting REITs to conventional real estate firms in order to analyze the treatment effect in the absence of other variables by using the difference-in-differences method (DiD). DiD enables the researcher to estimate the difference between the pre-post, within-subject differences of the treatment and control group caused by the treatment. However, this is only possible if the treatment resembles the only different cause of change throughout the period, hence the groups need to be otherwise highly similar. On top of that, the group composition needs to stay constant. All empirical data was collected via Thomson Reuters Datastream. The data sample is constrained to the UK because of two reasons. First, there is no global standard for the REIT regime. Although they all function in the same way, there are still differences in the structural characteristics. As the parallel trend assumption is essential for a DiD analysis, it is therefore not possible to compare firms of different countries in one analysis. Moreover, the level of corporate taxation varies significantly between countries, which would complicate a precise analysis. The UK was chosen for practical reasons. On the one hand, the real estate market needs to be sizeable enough in order to have sufficient firms in both groups to obtain statistical significance. On the other hand, the treatment needs to be in a time range for which all data are is available. The original sample from the UK consists of 19 REITs and 31 conventional firms. However, because of missing and flawed data, the sample was reduced to 14 REITs and 18 conventional firms. Table 1 summarizes the original sample as well as the reasons for eliminating various firms from the sample. In order to have complete data, I only include the years 2001 until 2011. 4. 1 Regression This study strives to find the effect of the given treatment, exemption of corporate taxes, on several variables. If TB and TA are the average values of a dependent variable of the treatment group before and after the treatment and CB and CA the values for the control group respectively, I can estimate the difference as: (TA TB) – (CA – CB) | Treatment group| Control Group| Before| TB| CB| After| TA| CA| Table 3: Difference Estimator However, this estimator is not precise, as differences between the groups are not cancelled out. In order to achieve this, I set up a regression model with the two dummy variables ‘Treat’ and ‘Time’. Before Treatment After Treatment If in Treatment Group If in Control Group With the dummies: Hence, the difference estimator is: Table 4: Difference in Difference Model | Treatment Group| Control Group| Difference| Before| c + ? 1| c| ? 1| After| c + ? 1 + ? 2 + ? 3| c + ? 2| ? 1 + ? 3| Difference| ? 2 + ? 3| ? 2| ? 3| Here, it is visible that ? 3 is the difference estimator. There are ten variables used in this study. Table 2 provides an overview of these variables along with definitions. The focus of this study lies on the Re, Rdt2, Re/Rdt2 and D/E. Rdt2 is chosen to scrutinize whether the treatment actually increases the cost of debt by the size of the tax shield. Re is included to examine whether the cost of equity also changes, which would be contrary to my expectations. Re/Rdt2 and D/E are chosen to examine whether the capital structure of REITs changes due to the treatment. The remaining variables are in parts highly similar and are included to investigate if there are eventually other or higher correlations, which might help to explain certain outcomes. For that reason, I chose Rdt1 and Rdt2 as two estimators of the cost of debt. Rdt2 can be seen as the most basic estimator, as it is simply the total interest expense of outstanding debt over total debt. Next to this basic estimator, I use Rdt1, which includes the valuation gains and losses of derivatives used for interest hedging in accordance to IFRS 9. According to this regulation, each hedging instrument is directly connected to a particular debt and hence, it should be included in the costs of debt (KPMG, 2012). It is not generally defined, whether Rdt1 or Rdt2 is the better estimator of the cost of debt. The results differ in fact significantly and will be discussed later on. Furthermore, I use the ratio D/A as an alternative expression of the leverage ratio. It is necessary to state that I use book values obtained via Thomson Reuters Datastream for debt and equity because of the complexity of using market rates. Whereas the impact of book values for debt will be insignificant, the impact of book values for equity should be seen more critically (Maris and Elayan, 1990). The cost of equity (Re) was calculated according to the capital asset pricing model (CAPM) and is explained in table 2 in the appendix. Next to the weekly return data of all companies, I chose the FTSE 350 and the UK Interbank 3-month rate as estimators of the market return and risk free rate respectively. The FTSE 350 combines the FTSE 100 and FTSE 250 and provides an industry-spanning overview of the British market. The corporation tax rates were obtained from HM Revenue amp; Customs, the UK tax authority. From 2000 onwards, the corporation tax rate in England was 30 percent. From 2008 until 2010 it was 28 percent, in 2011 26 percent and in 2012 24 percent. There are some problems associated with a DiD analysis, which need to be discussed. First of all, the composition of the treatment group needs to be random. That means in the context of this study, that out of the entire population of real estate firms eligible for the REIT status, those firms who actually elected the REIT status cannot have previously possessed a certain criterion that the firms in the control group did not have. Otherwise, the treatment effect cannot be attributed to the treatment only, but this criterion as well. The research did not reveal any aspect how REITs and conventional firms may have been different in advance to the REIT regime, hence this condition is not hurt. Moreover, the parallel trend assumption is the cornerstone of the DiD analysis. Titman and Wessels (1988) examined eight attributes towards their impact on the costs and benefits associated with debt and equity financing. Only the four determinants uniqueness, industry classification, size and profitability are found to have a significant effect. Size may be of an issue here, because several authors suggest that bankruptcy costs increase as size decreases. The REIT group has a far bigger average size than the Non-REITs. Nevertheless, as the cost of debt of Non-REITs actually decreases, it is not expected to have an impact in this sample. The remaining three determinants are considered to be the same for both groups and are not assumed to be affected by a company’s election of the REIT status. 5. Findings and Discussion The following table provides an overview of the averages of all included variables for the time ranges before and after 2007. The variables are explained in table 2 in the appendix. Table 5: Averages pre- and post-treatment REITs Non-REITs | N| 2001-2006| 2007-2011| % -Change| Â  | N| 2001-2006| 2007-2011| % -Change| | | | | | | | | | | T| | 0. 3| 0| | | | 0. 3| 0. 2733| | Re| 154| 0. 0401| 0. 0542| 34. 99| | 198| 0. 388| 0. 0464| 19. 52| Rdt1| 154| 0. 0384| 0. 0561| 46. 24| | 197| 0. 0383| 0. 0394| 2. 92| Rdt2| 154| 0. 0385| 0. 0471| 22. 31| | 197| 0. 0384| 0. 0333| -13. 28| Re/Rdt1| 154| 1. 1742| 1. 1232| -4. 34| | 197| 1. 1280| 1. 4664| 29. 99| Re/Rdt2| 154| 1. 1053| 1. 2100| 9. 48| | 197| 1. 1212| 1. 6444| 46. 66| | | | | | | | | | | A| 154| 2,944,589| 3,635,561| 23. 47| | 197| 416,083| 577 ,974| 38. 91| E| 154| 1,568,056| 1,911,587| 21. 91| | 197| 192,164| 232,028| 20. 74| D| 154| 1,376,533| 1,723,974| 25. 24| | 197| 223,919| 345,946| 54. 50| D/A| 154| 0. 4552| 0. 4627| 1. 66| | 197| 0. 4643| 0. 4982| 7. 8| D/E| 154| 0. 9046| 0. 9920| 9. 66| Â  | 197| 1. 1154| 1. 5509| 39. 04| This table supports a number of interesting findings. First of all, the debt shield seems to have the expected effect on cost of debt. Both Rdt1 and Rdt2 of REITs rose by more than 30 percent relative to those of Non-REITs. Rdt1 of REITs almost doubled with a 46. 2 percent increase, while that of Non-REITs stayed almost constant with a 2. 9 percent increase. And although Rdt2 of REITs increased by only 22. 3 percent, the Rdt2 of Non-REITs fell by 13. 3 percent, thus resulting in a 36. 6 difference in their relative development. Interestingly Rdt1 has risen in relation to Rdt2 for both groups. This can be explained by the rather low 3-month interbank rates, which have experienced a significant drop in the last quarter of 2008 after the beginning of the financial crisis, and have stayed at that level until now. This has led to devaluations of the derivatives used for hedge accounting in accordance to IFRS 9. Moreover, the descriptive statistics of Rdt1 and Rdt2 in table 7 show, that Rdt2 is the more reliable variable. Rdt1 has more than twice the standard deviation as well as negative values, which do not portray useful information. Overall, Rdt1, as a value for cost of debt, may be the more precise value to use from a theoretic point of view, as it includes the costs of hedging, however it turns out to produce inconclusive results. This is due to the fact that high valuation gains or losses distort the total interest expense for that year, showing even negative values in some cases. Moreover, the correlation between Rdt1 and the leverage ratios is weaker than the correlation between Rdt2 and the same. A reason for this might be, that management considers hedging choices only after a security has been selected and not beforehand. Rather unexpected is the raise of Re for both groups. The 16 percent increase in Re for Non-REITs is in accordance to the literature as it may result from the 32. 1 percent increase in financial leverage. The higher amount of debt implies higher betas which in turn increase the Re. However, the Re of REITs rose by 29. 2 percent, whereas there was only an 8 percent rise in financial leverage. This study does not find any evidence how the REIT status may have caused this significant increase in Re. Both REITs and Non-REITs have experienced rises in total assets accompanied by rises in total equity and debt. The expectation that REITs use less debt for financing growth than Non-REITs is confirmed by the results. In detail, the total assets of REITs increased by 23. 5 percent with a 21. 9 percent increase of equity and a 25. 2 percent increase of debt. Non-REITs financed a 38. 9 percent increase of total assets with 20. 7 percent increase in equity and 54. 5 percent increase in debt. Moreover, the D/E ratio of Non-REITs rose by 39 percent whereas the D/E ratio of REIT rose by less than 10 percent. This is seen to be in accordance with the literature, especially with the trade-off and pecking order model. REITs did not become less leveraged in the post-treatment phase compared to the previous state, however they did use far less leverage than Non-REITs. The fact that they are not less leveraged is likely explained by the favorable debt conditions of the general economy as a response to the financial crisis. The regression model confirms some but not all of these results. Table 6 provides an overview of the c, ? 1, ? 2 and the difference estimator ? 3 for all dependent variables. The values in parentheses are the corresponding t-values, marked with an * if significant at the 1 percent level and ** at the 5 percent level. This could be examined by further research. The ratios Re/Rdt1 and Re/Rdt2 are also essential as they demonstrate that cost of debt has become much more expensive relative to cost of equity for REITs in comparison to Non-REITs, which confirms my expectations. The results for the remaining five variables are all insignificant, hence I cannot provide conclusive results to answer the second research question of whether capital structure changes due to a significant rise in the cost of debt relative to the cost of equity. Table 6 is in accordance with my expectations and the changes indicated by the descriptive statistics. The ? 3 value for both variables D/A and D/E is negative. This means that the leverage ratios of REITs decreased in comparison to those of Non-REITs. However, I do not obtain significant results to demonstrate that this has been caused by the treatment. In order to analyze whether a rise in the cost of debt relative to the cost of equity causes capital structure to change, I would have to run a subsequent regression model with Re/Rdt2 as the independent and D/A or D/E as the dependent variable. Unfortunately however, this is not possible with my statistical means, since the independent variable would be influenced by the treatment for the REIT group and has a time shift at 2006/2007, hurting the underlying statistical assumptions. Nevertheless, I can build a regression for the control group to examine the relationship of Re/Rdt2 and the leverage ratios for that group in order to derive some insights. Although I recognize that the explanatory power of this approach is highly limited, since I use a far smaller sample and neglect the entire treatment group, this approach can still trigger some first insights and hence timulate further research. The following regression model was used: I used the percentage change of absolute values for Yi and Xi, indicated via the denotation ‘CH’ in table 8 in the appendix. Other than for Rdt1, all expected relationships can be observed at a high significance level. There is a strong positive correlation between the cost of equity and the leverage ratios. Higher cost of equity favors the use of debt, hence the leverage ratios rise. Vice versa, there is a negative correlation of cost of debt and the leverage ratios. In general, the effects on the independent variables are higher for the leverage ratio D/E, which is similar to the previous results. 6. Conclusion As the literature review depicted, there are at best mixed results on how a significant rise in the cost of debt relative to the cost of equity will impact the capital structure in the long run. The pecking order model proposes that the cost of debt will still be lower than the cost of equity despite any increase from the missing tax shield, and thus there will still be similar benefits to the use of debt as before becoming a REIT. This study finds, that companies, who select the REIT status and thus become exempt from corporate taxes, experience a rise in their cost of debt, which almost equals the size of the tax shield. Both the descriptive statistics as well as the regression model confirm this. I cannot find significant results that the leverage ratio is affected by the treatment. The descriptive statistics do confirm my expectations, as well as the second regression model run for the control group. The coefficients from the difference in difference analysis are also in accordance with my expectations, however I do not obtain significant values.