Advanced Search
MyIDEAS: Login to save this article or follow this journal

Progressive taxation and corporate liquidation policy

Contents:

Author Info

  • Agliardi, Elettra
  • Agliardi, Rossella

Abstract

A problem of corporate liquidation policy is studied in a real option setting incorporating taxation, risky debt and conflict of interest between equity holders and debt holders or equity holders and manager. The critical liquidation threshold is derived as a function of four tax schedules and interest expenses. It is shown that the adoption of a progressive tax schedule can slow down or speed up the closure policy, while any flat tax plan does not interfere with the firm's liquidation policy. Moreover, the conflict of interest between shareholders and manager affects the liquidation trigger only under a progressive tax. This paper contributes to the debate on progressive vs proportional tax, employing a rigorous real option methodology which has never been used to study both liquidation policy and taxation.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6VB1-4R00FS2-1/1/446465b1d87fce7a608acfad916181f1
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 25 (2008)
Issue (Month): 3 (May)
Pages: 532-541

as in new window
Handle: RePEc:eee:ecmode:v:25:y:2008:i:3:p:532-541

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
  2. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. " On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-78, July.
  3. Caren Sureth, 2002. "Partially Irreversible Investment Decisions and Taxation under Uncertainty: A Real Option Approach," German Economic Review, Verein für Socialpolitik, vol. 3(2), pages 185-221, 05.
  4. Stein, Jeremy C., 2003. "Agency, information and corporate investment," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 2, pages 111-165 Elsevier.
  5. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
  6. MacKie-Mason, Jeffrey K, 1990. " Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-93, December.
  7. Parrino, Robert & Weisbach, Michael S., 1999. "Measuring investment distortions arising from stockholder-bondholder conflicts," Journal of Financial Economics, Elsevier, vol. 53(1), pages 3-42, July.
  8. Hayne E. Leland., 1994. "Corporate Debt Value, Bond Covenants, and Optimal Capital Structure," Research Program in Finance Working Papers RPF-233, University of California at Berkeley.
  9. Agliardi, Elettra, 2001. "Taxation and Investment Decisions: A Real Options Approach," Australian Economic Papers, Wiley Blackwell, vol. 40(1), pages 44-55, March.
  10. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier.
  11. Goldstein, Robert & Ju, Nengjiu & Leland, Hayne, 2001. "An EBIT-Based Model of Dynamic Capital Structure," The Journal of Business, University of Chicago Press, vol. 74(4), pages 483-512, October.
  12. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  13. Niemann, Rainer & Sureth, Caren, 2004. "Tax neutrality under irreversibility and risk aversion," Economics Letters, Elsevier, vol. 84(1), pages 43-47, July.
  14. Titman, Sheridan, 1984. "The effect of capital structure on a firm's liquidation decision," Journal of Financial Economics, Elsevier, vol. 13(1), pages 137-151, March.
  15. Christopher Hennessy & Toni Whited, 2004. "Debt Dynamics," 2004 Meeting Papers 592, Society for Economic Dynamics.
  16. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
  17. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
  18. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
  19. Fischer, Edwin O & Heinkel, Robert & Zechner, Josef, 1989. " Dynamic Capital Structure Choice: Theory and Tests," Journal of Finance, American Finance Association, vol. 44(1), pages 19-40, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Fahr, René & Janssen, Elmar & Sureth, Caren, 2014. "Can tax rate increases foster investment under entry and exit flexibility? Insights from an economic experiment," arqus Discussion Papers in Quantitative Tax Research 166, arqus - Arbeitskreis Quantitative Steuerlehre.
  2. Wong, Kit Pong, 2011. "Progressive taxation and the intensity and timing of investment," Economic Modelling, Elsevier, vol. 28(1-2), pages 100-108, January.
  3. Elettra Agliardi & Rossella Agliardi, 2007. "Progressive Taxation and Corporate Liquidation: Analysis and Policy Implications," Working Paper Series 29-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
  4. Agliardi, Elettra & Andergassen, Rainer, 2009. "Last resort gambles, risky debt and liquidation policy," Review of Financial Economics, Elsevier, vol. 18(3), pages 142-155, August.
  5. Feil, Jan-Henning & Musshoff, Oliver, 2013. "Modelling investment and disinvestment decisions under competition, uncertainty and different market interventions," Economic Modelling, Elsevier, vol. 35(C), pages 443-452.
  6. Rainer Niemann & Caren Sureth, 2011. "The Impact of Differential Capital Income Taxation on the Value of Risky Projects," Economics Bulletin, AccessEcon, vol. 31(2), pages 1047-1054.
  7. Wong, Kit Pong, 2010. "The effects of irreversibility on the timing and intensity of lumpy investment," Economic Modelling, Elsevier, vol. 27(1), pages 97-102, January.
  8. Schneider, Georg & Sureth, Caren, 2010. "The impact of profit taxation on capitalized investment with options to delay and divest," arqus Discussion Papers in Quantitative Tax Research 97, arqus - Arbeitskreis Quantitative Steuerlehre.
  9. Wong, Kit Pong, 2009. "Progressive taxation, tax exemption, and corporate liquidation policy," Economic Modelling, Elsevier, vol. 26(2), pages 295-299, March.
  10. Mehrmann, Annika & Schneider, Georg & Sureth, Caren, 2012. "Asymmetric taxation of profits and losses and its influence on investment timing: Paradoxical effects of tax increases," arqus Discussion Papers in Quantitative Tax Research 134, arqus - Arbeitskreis Quantitative Steuerlehre.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:25:y:2008:i:3:p:532-541. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.