Corporate Debt Value with Switching Tax Benefits and Payouts
AbstractThis paper analyzes a structural model of corporate debt in the spirit of Leland (1994) model within a more realistic general context where payouts and asymmetric tax-code provisions are introduced. We analytically derive the value of the tax benefit claim in this context and study the joint effect of tax asymmetry and payouts on optimal corporate financing decisions. Results show a quantitatively significant impact on both optimal debt issuance and leverage ratios, thus providing a way to explain differences in observed leverage across firms.
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Bibliographic InfoPaper provided by Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa in its series Working Papers - Mathematical Economics with number 2011-10.
Length: 30 pages
Date of creation: Dec 2011
Date of revision:
structural model; corporate debt; endogenous bankruptcy; optimal stopping; tax benefits of debt;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-01-18 (Accounting & Auditing)
- NEP-ALL-2012-01-18 (All new papers)
- NEP-CFN-2012-01-18 (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.:
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