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Asymmetric Information, Corporate Myopia and Implications for Capital Gain Tax Rates

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  • Thomas J. Chemmanur
  • S. Abraham Ravid

Abstract

We develop a model of corporate myopia in which the interaction between asymmetric information and short-term trading by the firm's equity holders induces firm managers to undertake a short-term projects rather than long-term projects, which are intrinsically more valuable. In this setting, we analyze the impact on a reduction in the capital gains tax rate on project selection. We show that a capital gains tax cut for investors who hold equity in the firm

Suggested Citation

  • Thomas J. Chemmanur & S. Abraham Ravid, 1997. "Asymmetric Information, Corporate Myopia and Implications for Capital Gain Tax Rates," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-018, New York University, Leonard N. Stern School of Business-.
    • Handle: RePEc:fth:nystfi:98-018
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