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The Tax-adjusted Q Model with Intangible Assets: Theory and Evidence from Temporary Investment Tax Incentives

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  • Sophia Chen
  • Estelle Dauchy

Abstract

We propose a tax-adjusted q model with physical and intangible assets and estimate it with a self-collected comprehensive database of intangible assets. The presence of intangibles changes the accounting and economic measures of q. We show that when tax changes are temporary, the q model can be estimated by adjusting for the firm’s intangible stock and intangible intensity. We estimate our model using temporary investment tax incentive policies in the United States in the early 2000s. When the q-model accounts for intangible assets, the estimated investment elasticity to tax incentives is generally larger than otherwise. It is also larger for intangible-intensive firms, and increases with firm size.

Suggested Citation

  • Sophia Chen & Estelle Dauchy, 2014. "The Tax-adjusted Q Model with Intangible Assets: Theory and Evidence from Temporary Investment Tax Incentives," IMF Working Papers 2014/104, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2014/104
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    1. Sebastien Bradley & Estelle Dauchy & Makoto Hasegawa, 2018. "Investor valuations of Japan’s adoption of a territorial tax regime: quantifying the direct and competitive effects of international tax reform," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 581-630, June.

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    More about this item

    Keywords

    WP; book value; cash flow; market value; investment tax incentives; intangible assets; q model of investment; bonus depreciation; intangible intensity; intangible-intensive firm; investment rate; firm level; firm face; Tax incentives; Asset valuation; Investment incentives; Depreciation; Stocks; North America;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts

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