Anil Arya and Brian Mittendorf of OSU Fisher College of Business, Tyler Atanasov of OSU Department of Accounting & Management Information Sessions, and Dae-Hee Yoon of Yonsei University, have made available for download their article, “Information Acquisition, Inventory Levels, and Tax Incentives for Charitable Giving.” The abstract is as follows:
Many of America’s top corporate donors share a common feature: the bulk of their giving is in the form of in-kind products, not cash. This phenomenon is not a coincidence but rather a result of the tax code creating such a preference due to an “enhanced” deduction for inventory donations. In this paper, we utilize a parsimonious model of inventory choice under uncertainty to demonstrate that enhanced tax deductions not only promote giving, they also promote better learning of consumer demand for products in the retail market. An inventory stockout curtails a firm’s learning of precise consumer demand since the firm’s sales volume only reveals that the underlying consumer demand exceeded the inventory level. Tax incentives for donations of excess inventory encourage a firm to boost its inventory stocks which, in turn, boosts the firm’s learning of consumer preferences. Accounting for this informational role of tax incentives, the paper derives charitable giving patterns, socially-beneficial tax policy, and firms’ information acquisition choices.
Posted by Isabella King, Associate Editor, Wealth Strategies Journal.