Differential Taxation and Corporate Futures-Hedging
AbstractUsing a two-moment decision model this paper analyzes corporate hedging behavior in the presence of unified and differential income taxation. We start with the well-known result that risk-taking may increase when income tax rates increase and, therefore, the incentive for hedging reduces. We demonstrate that pure hedging is differently affected by taxation than speculative hedging is. Analysing tax-sensitivity of the corporate hedge shows that a higher risk in the first place may reduce the tax-induced incentive to revise a futures position. --
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Bibliographic InfoPaper provided by Dresden University of Technology, Faculty of Business and Economics, Department of Economics in its series Dresden Discussion Paper Series in Economics with number 06/07.
Date of creation: 2007
Date of revision:
taxation; hedging; mean-variance model; unified and differential taxation; Roy preference function;
Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
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