By John, R Graham
A evaluation of Taxes and company Finance investigates the implications of taxation on company finance targeting how taxes have an effect on company guidelines and enterprise worth. a standard subject is that tax ideas impact company incentives and judgements. A moment emphasis is on learn that describes how taxes impact bills and merits. A overview of Taxes and company Finance explores the a number of avenues for taxes to impact company judgements together with capital constitution judgements, organizational shape and restructurings, payout coverage, reimbursement coverage, probability administration, and using tax shelters. the writer presents a theoretical framework, empirical predictions, and empirical proof for every of those parts. each one part concludes with a dialogue of unanswered questions and attainable avenues for destiny learn. A assessment of Taxes and company Finance is effective analyzing for researchers and pros in company finance, company governance, public finance and tax coverage.
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Finally, most papers ignore the tax cost of receiving interest income from the investor’s perspective, an issue to which I now turn. 4 Empirical evidence on whether personal taxes aﬀect corporate debt vs. equity policy Miller (1977) identiﬁes a puzzle: the beneﬁts of debt seem large relative to expected costs, and yet many ﬁrms do not use much debt. Miller proposes that the personal tax cost of interest income (relative to the personal tax cost of equity) is large enough at the margin to completely oﬀset the corporate tax advantage of debt.
1988). If the corporate tax function is convex, the expected present value tax beneﬁt of short-term debt declines with interest rate volatility, while the tax deductions with long-term debt are ﬁxed. Therefore, long-term debt is preferred when interest rates are volatile. , 1995) because option value increases with security maturity and long-term bond prices are more sensitive to changes in interest rates. Prediction 9 Debt maturity increases with interest rate volatility. Kim et al. (1995) ﬁnd that debt maturity increases with interest rate volatility but Guedes and Opler (1996) do not.
This variable has a large value for ﬁrms that do not currently have NOLs and that do not expect to experience a loss in the near future. Harwood and Manzon predict a positive relation between this tax variable and debt maturity. They argue that ﬁrms with large values for the tax variable are likely to fully utilize tax deductions in the future, and therefore lock into long-term debt now. In new analysis for this chapter, I perform a more direct test on the hypothesis that uncertainty about future tax-paying status reduces the use of long-term debt.
A Review of Taxes and Corporate Finance by John, R Graham