Reply to "Comment on the value of tax shields is NOT equal to the present value of tax shields"
AbstractThe Comment is thought provoking and helps a lot in rethinking the value of tax shields. However, the conclusion of Fieten, Kruschwitz, Laitenberger, Löffler, Tham, Vélez-Pareja and Wonder (2005) is not correct because, as will be proven below, the main result of Fernández (2004) is correct for several situations. Equation (16a) shows that the value of tax shields depends only upon the nature of the stochastic process of the net increase of debt.
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Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/579.
Length: 8 pages
Date of creation: 15 Jan 2005
Date of revision:
Value of tax shields; present value of the net increases of debt;
Other versions of this item:
- Fernandez, Pablo, 2005. "Reply to "Comment on the value of tax shields is NOT equal to the present value of tax shields"," The Quarterly Review of Economics and Finance, Elsevier, vol. 45(1), pages 188-192, February.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ACC-2005-03-06 (Accounting & Auditing)
- NEP-ALL-2005-03-06 (All new papers)
- NEP-CFN-2005-03-06 (Corporate Finance)
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.:
- Fernandez, Pablo, 2004.
"The value of tax shields is NOT equal to the present value of tax shields,"
Journal of Financial Economics,
Elsevier, vol. 73(1), pages 145-165, July.
- Fernández , Pablo, 2002. "The value of tax shields is not equal to the present value of tax shields," IESE Research Papers D/459, IESE Business School.
- Robert A. Taggart & Jr., 1991. "Consistent valuation and Cost of Capital Expressions With Corporate and Personal Taxes," Financial Management, Financial Management Association, vol. 20(3), Fall.
- Carlo Alberto, Magni, 2008.
"Splitting Up Value: A Critical Review of Residual Income Theories,"
10506, University Library of Munich, Germany.
- Magni, Carlo Alberto, 2009. "Splitting up value: A critical review of residual income theories," European Journal of Operational Research, Elsevier, vol. 198(1), pages 1-22, October.
- Andrea Gamba & Gordon A. Sick & Carmen Aranda León, 2008.
"Investment under Uncertainty, Debt and Taxes,"
Banca Monte dei Paschi di Siena SpA, vol. 37(1), pages 31-58, 02.
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