John Minahan on Action Learning: How Master of Finance students apply classroom skills to real problems

MIT Sloan Sr. Lecturer John Minahan

MIT Sloan Sr. Lecturer John Minahan

How has the 2011 European sovereign credit crisis changed the pricing relationship between sovereign bonds and credit default swaps written on those bonds? Why do 401(k) investment options offer daily liquidity when such liquidity is expensive and unnecessary? If one wants to back-test a long-short investment process, how should the fall of 2008 – when shorting in many stocks was banned – be treated in the back-test?

These are just a few of the many fascinating questions our Master of Finance students will study in the 2012 Finance Research Practicum. The Practicum is an action learning course in which students work on research questions posed by external clients, clients for whom an answer to the question is a key element of an important business decision.

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U.S. corporate taxes: A strong incentive to move overseas

MIT Sloan Assoc. Prof. Michelle Hanlon

When a U.S. company owns a subsidiary overseas, it has a big decision to make when it comes to the earnings of that subsidiary. Does it send the money back to the parent company in the U.S. and pay U.S. corporate taxes or does it avoid the U.S. tax by permanently reinvesting the money abroad?

Given that the U.S. has one of the highest corporate tax rates of any country in the world, it’s not surprising that many companies choose not to repatriate the money.

Our current system in the U.S. — known as the worldwide tax system — is one where U.S. companies’ earnings are taxed in the U.S. even if earned overseas. However, companies are not required to pay the U.S. taxes on operating income of foreign subsidiaries until they bring cash home to the U.S. parent company.

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