Advanced Search
MyIDEAS: Login

Financial Management When Interests On Debt Are Not Fully Deductable. The Italian Case Study

Contents:

Author Info

  • Alberto LANZAVECCHIA

    ()
    (Faculty of Economics, University of Parma, Italy)

  • Lucia POLETTI

    ()
    (Faculty of Economics, University of Parma, Italy)

  • Beatrice RONCHINI

    ()
    (Faculty of Economics, University of Parma, Italy)

  • Giulio TAGLIAVINI

    ()
    (Faculty of Economics, University of Parma, Italy)

Abstract

Purpose: Corporate finance management rules are written under the assumption that financing costs are deductible from taxable income. If this assumption is relaxed, such management rules needs to be revised. How do managers maximise operating margins and returns if this assumption no longer holds true? We faced this issue using both an algebraic and a simulation approach. By defining numerical analysis models, we bypass algebraic profile and skills, which might become too complex for practitioners. Methodology/approach: The recent tax reform introduced in Italy, that creates a partial tax deduction for financing costs, offers a case study. We reviewed traditional management tools and we proposed an analytical model for a simulation approach to measure the effect of these new tax rules on the optimal financial leverage and the maximum firm leverage. Findings: We demonstrate that the new regulation might have a deep impact on not sufficiently profitable companies. We also outline that the regulation is not addressed to highly profitable firms which could be the target for a taxation system aimed to an excess profits redistribution. The recent tax reform ultimately did not address the key issue for the Italian political economy: to strengthen the corporate financial structure and to reduce excess profit generation. Originality/value: We propose a new set of guidelines for financial management wherever financing costs would no longer be deductible from taxable income by linking a well known theoretical framework with a practitioners’ approach.

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.seap.usv.ro/annals/arhiva/ANNALS%20vol.10,nr.special,2010%20fulltext.pdf
Download Restriction: no

Bibliographic Info

Article provided by "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration in its journal The Annals of the "Stefan cel Mare" University of Suceava. Fascicle of The Faculty of Economics and Public Administration.

Volume (Year): 10 (2010)
Issue (Month): Special (December)
Pages: 283-302

as in new window
Handle: RePEc:scm:ausvfe:v:10:y:2010:i:special:p:283-302

Contact details of provider:
Postal: Universitatii 9, 720225; Suceava
Phone: +40 230 522978
Fax: +40 230 216147
Email:
Web page: http://www.seap.usv.ro
More information through EDIRC

Related research

Keywords: financial leverage; corporate taxation; accounting ratios; Italy;

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

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:scm:ausvfe:v:10:y:2010:i:special:p:283-302. 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: (Liviu Scutariu).

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.