IDEAS home Printed from https://ideas.repec.org/a/fep/journl/v22y2009i1p21-30.html
   My bibliography  Save this article

Does Tax Debt Capacity Matttter?

Author

Listed:
  • Hovick Shahnazarian

    () (Financial Stability Department, Sveriges Riksbank)

Abstract

Nordic corporations to a large extent both pay corporate tax and abstain from utilizing their depreciation allowances to the maximum extent possible. In this paper, we attempt to explain the empirical observation that most firms fails to maximize their tax usage. The model employed takes into account the argument that shareholders for some non-tax reasons have a preference for dividends over retained earnings. Furthermore, we also investigate whether a policy of not claiming the maximum amount of depreciation allowances could be value maximizing for the firm.

Suggested Citation

  • Hovick Shahnazarian, 2009. "Does Tax Debt Capacity Matttter?," Finnish Economic Papers, Finnish Economic Association, vol. 22(1), pages 21-30, Spring.
  • Handle: RePEc:fep:journl:v:22:y:2009:i:1:p:21-30
    as

    Download full text from publisher

    File URL: http://www.taloustieteellinenyhdistys.fi/images/stories/fep/fep0901_3.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Auerbach, Alan J, 1983. "Taxation, Corporate Financial Policy and the Cost of Capital," Journal of Economic Literature, American Economic Association, vol. 21(3), pages 905-940, September.
    2. Kanniainen, Vesa & Sodersten, Jan, 1995. "The importance of reporting conventions for the theory of corporate taxation," Journal of Public Economics, Elsevier, vol. 57(3), pages 417-430, July.
    3. Robin Boadway, 1980. "Corporate Taxation and Investment: A Synthesis of the Neo-Classical Theory," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 250-267, May.
    4. Boadway, R. W. & Bruce, N., 1979. "Depreciation and interest deductions and the effect of the corporation income tax on investment," Journal of Public Economics, Elsevier, vol. 11(1), pages 93-105, February.
    5. Kanniainen, Vesa & Sodersten, Jan, 1994. "Costs of monitoring and corporate taxation," Journal of Public Economics, Elsevier, vol. 55(2), pages 307-321, October.
    6. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    7. Jason Cummins & Trevor Harris & Kevin Hassett, 1995. "Accounting Standards, Information Flow, and Firm Investment Behavior," NBER Chapters,in: The Effects of Taxation on Multinational Corporations, pages 181-224 National Bureau of Economic Research, Inc.
    8. Boadway, Robin W, 1978. "Investment Incentives, Corporate Taxation, and Efficiency in the Allocation of Capital," Economic Journal, Royal Economic Society, vol. 88(351), pages 470-481, September.
    9. Eades, Kenneth M., 1982. "Empirical Evidence on Dividends as a Signal of Firm Value," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(04), pages 471-500, November.
    10. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 133-152, May.
    11. Osterberg, William P., 1989. "Tobin's q, investment, and the endogenous adjustment of financial structure," Journal of Public Economics, Elsevier, vol. 40(3), pages 293-318, December.
    12. Mervyn A. King, 1974. "Taxation and the Cost of Capital," Review of Economic Studies, Oxford University Press, vol. 41(1), pages 21-35.
    13. Sandmo, Agnar, 1974. "Investment Incentives and the Corporate Income Tax," Journal of Political Economy, University of Chicago Press, vol. 82(2), pages 287-302, Part I, M.
    14. Hovick Shahnazarian, 1997. "A theoretical evaluation of the Swedish corporate tax reform act of 1994," Finnish Economic Papers, Finnish Economic Association, vol. 10(2), pages 67-80, Autumn.
    15. Lawrence H. Summers, 1981. "Taxation and Corporate Investment: A q-Theory Approach," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(1), pages 67-140.
    16. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fep:journl:v:22:y:2009:i:1:p:21-30. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Editorial Secretary). General contact details of provider: http://edirc.repec.org/data/talouea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.