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Value and capacity of tax shields: An analysis of the slicing approach

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  • Qi, Howard

Abstract

Correctly valuing tax shields has been a challenge in corporate valuation. A recent study by Liu (2009) introduces the slicing approach to separating the tax shield into the earned and unearned parts. Liu also shows that the MM results are wrong, and claims that the slicing approach has finally resolved the issue of pricing tax shields, thereby bringing closure to the topic. However, through careful analysis, we refute Liu's main claims and restore the MM results. There are still open questions and the topic is not completely resolved as claimed in Liu (2009).

Suggested Citation

  • Qi, Howard, 2011. "Value and capacity of tax shields: An analysis of the slicing approach," Journal of Banking & Finance, Elsevier, vol. 35(1), pages 166-173, January.
    • Handle: RePEc:eee:jbfina:v:35:y:2011:i:1:p:166-173
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    References listed on IDEAS

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    Cited by:

    1. Robert Couch & Michael Dothan & Wei Wu, 2012. "Interest Tax Shields: A Barrier Options Approach," Review of Quantitative Finance and Accounting, Springer, vol. 39(1), pages 123-146, July.
    2. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.
    3. Miroslava Vlčková & Tomáš Buus, 2021. "Some Statistical Properties of Models of Transitory Earnings," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 69(2), pages 189-198.
    4. Mai, Nhat Chi, 2012. "Market timing, taxes and capital structure: evidence from Vietnam," OSF Preprints t3mvs, Center for Open Science.

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