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Taxes And The Refunding Of Discount Bonds

Author

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  • Edward A. Dyl
  • Ronald W. Spahr

Abstract

This paper examines the effect of the Bankruptcy Tax Act of 1980 on the decision to refund corporate bonds selling at a discount. Historically, the refunding of discount debt has appeared to be profitable on a discounted cash flow basis. This study demonstrates, however, that the tax effects of the Bankruptcy Tax Act of 1980 have eliminated effectively any potential gains from refunding discounted debt.

Suggested Citation

  • Edward A. Dyl & Ronald W. Spahr, 1983. "Taxes And The Refunding Of Discount Bonds," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 6(4), pages 265-273, December.
    • Handle: RePEc:bla:jfnres:v:6:y:1983:i:4:p:265-273
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    File URL: http://hdl.handle.net/10.1111/j.1475-6803.1983.tb00337.x
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    References listed on IDEAS

    as
    1. Ofer, Aharon R & Taggart, Robert A, Jr, 1977. "Bond Refunding: A Clarifying Analysis," Journal of Finance, American Finance Association, vol. 32(1), pages 21-30, March.
    2. Shiller, Robert J. & Modigliani, Franco, 1979. "Coupon and tax effects on new and seasoned bond yields and the measurement of the cost of debt capital," Journal of Financial Economics, Elsevier, vol. 7(3), pages 297-318, September.
    3. Ang, James S, 1975. "The Two Faces of Bond Refunding," Journal of Finance, American Finance Association, vol. 30(3), pages 869-874, June.
    4. Ang, James S, 1978. "The Two Faces of Bond Refunding: Reply," Journal of Finance, American Finance Association, vol. 33(1), pages 354-356, March.
    5. Oswald D. Bowlin, 1966. "The Refunding Decision: Another Special Case In Capital Budgeting," Journal of Finance, American Finance Association, vol. 21(1), pages 55-68, March.
    6. Ederington, Louis H, 1974. "The Yield Spread of New Issues of Corporate Bonds," Journal of Finance, American Finance Association, vol. 29(5), pages 1531-1543, December.
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