IDEAS home Printed from https://ideas.repec.org/a/gam/jmathe/v10y2022i4p666-d754297.html

Impact of Advance Payments of Tax on Profit on Effectiveness of Investments

Author

Listed:
  • Tatiana Filatova

    (Department of Financial and Investment Management, Financial University under the Government of Russian Federation, 125993 Moscow, Russia)

  • Peter Brusov

    (Department of Mathematics, Financial University under the Government of Russian Federation, 125993 Moscow, Russia)

  • Natali Orekhova

    (High Business School, Southern Federal University, 344090 Rostov-on-Don, Russia)

Abstract

Recently Brusov et al. have developed innovative investment models that are very close to investment practice. Investment models with frequent payments of tax on profit and of interest on debt at the ends of periods have been considered. However, in practice, payments of tax on profit as well as of interest on debt could be made in advance. In the current paper, we developed, for the first time, innovative investment models with frequent advance payments of tax on profit and of interest on debt and studied the impact of these types of payments on investment project effectiveness. Numerical calculations carried out for four innovative investment models (without split flows) showed that, in the case of advance frequent payments of income tax and interest on debt, all the results related to the effect of the number of payments of income tax and interest on debt on the investment projects’ effectiveness were opposite to the results in the case of payments at the end of the periods obtained by Brusov et al. in the previous article. Thus, this means that the method of payments of tax on profit and of interest on debt (in advance or at the ends of periods) changes drastically the effect of the number of payments of income tax and interest on debt on the investment effectiveness. The verification developed by us for the new models with frequent advance payments of tax on income helps create a comprehensive system of correct valuation of the investments’ effectiveness for two schemes for payments of income tax (in advance or at the ends of periods). The obtained results help the tax regulator (Finance Ministry) understand the influence of the frequency of payments of tax on income and the credit regulator (Central Bank) understand the influence of the frequency of payments of interest on debt on the investment projects’ effectiveness. This allows them to modify and improve tax legislation and credit policy, respectively.

Suggested Citation

  • Tatiana Filatova & Peter Brusov & Natali Orekhova, 2022. "Impact of Advance Payments of Tax on Profit on Effectiveness of Investments," Mathematics, MDPI, vol. 10(4), pages 1-25, February.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:4:p:666-:d:754297
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7390/10/4/666/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7390/10/4/666/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Panagiotis Dimitropoulos, 2014. "Capital structure and corporate governance of soccer clubs," Management Research Review, Emerald Group Publishing Limited, vol. 37(7), pages 658-678, June.
    2. Peter Brusov & Tatiana Filatova, 2021. "The Modigliani–Miller Theory with Arbitrary Frequency of Payment of Tax on Profit," Mathematics, MDPI, vol. 9(11), pages 1-25, May.
    3. Whited, Toni M, 1992. "Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-1460, September.
    4. Marcos Escobar-Anel & Andreas Lichtenstern & Rudi Zagst, 2020. "Behavioral portfolio insurance strategies," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 34(4), pages 353-399, December.
    5. P.N. Brusov & T.V. Filatova & N.P. Orekhova & M.A. Eskindarov & V.L. Kulik, 2015. "Modern Theory of Capital Cost and Capital Structure by Brusov–Filatova–Orekhova (BFO Theory) for Companies, which Ceased to Exist at the Time Moment n," Journal of Reviews on Global Economics, Lifescience Global, vol. 4, pages 87-95.
    6. Zhukov Pavel, 2018. "The Impact of Cash Flows and Weighted Average Cost of Capital to Enterprise Value in the Oil and Gas Sector," Journal of Reviews on Global Economics, Lifescience Global, vol. 7, pages 138-145.
    7. Peter Brusov & Tatiana Filatova & Natali Orekhova & Mukhadin Eskindarov, 2018. "Modern Corporate Finance, Investments, Taxation and Ratings," Springer Books, Springer, edition 2, number 978-3-319-99686-8, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "Capital Structure Theory: Past, Present, Future," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 9-50, Springer.
    2. Zbysław Dobrowolski & Grzegorz Drozdowski & Mirela Panait & Simona Andreea Apostu, 2022. "The Weighted Average Cost of Capital and Its Universality in Crisis Times: Evidence from the Energy Sector," Energies, MDPI, vol. 15(18), pages 1-15, September.
    3. Morris G. Danielson, 2023. "Tax Shields, the Weighted Average Cost of Capital, and the Appropriate Discount Rate for a Project with a Finite Useful Life," JRFM, MDPI, vol. 16(9), pages 1-17, September.
    4. Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "The Generalization of the Brusov–Filatova–Orekhova Theory for the Case of Payments of Tax on Profit with Arbitrary Frequency," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 217-239, Springer.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "The Generalization of the Brusov–Filatova–Orekhova Theory for the Case of Payments of Tax on Profit with Arbitrary Frequency," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 217-239, Springer.
    2. Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "Innovative Investment Models with Frequent Payments of Tax on Income and of Interest on Debt," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 501-528, Springer.
    3. Daniel Tut, 2022. "Debt dynamic, debt dispersion and corporate governance," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 19(4), pages 744-771, July.
    4. Frederico Belo & Chen Xue & Lu Zhang, 2010. "Cross-sectional Tobin's Q," NBER Working Papers 16336, National Bureau of Economic Research, Inc.
    5. Timothy Erickson & Toni M. Whited, 2010. "Erratum: Measurement Error and the Relationship between Investment and q," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1252-1257.
    6. Duygan-Bump, Burcu & Levkov, Alexey & Montoriol-Garriga, Judit, 2015. "Financing constraints and unemployment: Evidence from the Great Recession," Journal of Monetary Economics, Elsevier, vol. 75(C), pages 89-105.
    7. Hirokazu Mizobata & Hiroshi Teruyama, 2020. "Factor Adjustments and Liquidity Management: Evidence from Japan's Two Lost Decades and Financial Crises," KIER Working Papers 1043, Kyoto University, Institute of Economic Research.
    8. Kim, Sang-Joon & Bae, John & Oh, Hannah, 2019. "Financing strategically: The moderation effect of marketing activities on the bifurcated relationship between debt level and firm valuation of small and medium enterprises," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 663-681.
    9. Zhang, Wei, 2015. "R&D investment and distress risk," Journal of Empirical Finance, Elsevier, vol. 32(C), pages 94-114.
    10. Bae, John & Kim, Sang-Joon & Oh, Hannah, 2017. "Taming polysemous signals: The role of marketing intensity on the relationship between financial leverage and firm performance," Review of Financial Economics, Elsevier, vol. 33(C), pages 29-40.
    11. Satyajit Chatterjee & Burcu Eyigungor, 2023. "The Firm Size-Leverage Relationship and Its Implications for Entry and Business Concentration," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 132-157, April.
    12. Bagchi, A. K. & Das, Pranab Kumar & Moitra, B., 2002. "Are listed Indian firms finance constrained: Evidence for 1991-92 to 1997-98," MPRA Paper 41611, University Library of Munich, Germany.
    13. J.A Obadeyi & S.O. Ogbeide & A.A Akande, 2020. "Barriers of Microfinance Banks’ Credit Delivery to Small Enterprises: An Empirical Analysis from South-Western Nigeria," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 23(78), pages 27-46, December,.
    14. Christopher F. Baum & Andreas Stephan & Oleksandr Talavera, 2009. "The Effects Of Uncertainty On The Leverage Of Nonfinancial Firms," Economic Inquiry, Western Economic Association International, vol. 47(2), pages 216-225, April.
    15. Boasiako, Kwabena Antwi & Adasi Manu, Sylvester & Antwi-Darko, Nana Yaw, 2022. "Does financing influence the sensitivity of cash and investment to asset tangibility?," International Review of Financial Analysis, Elsevier, vol. 80(C).
    16. Luis Garicano & Claudia Steinwender, 2016. "Survive Another Day: Using Changes in the Composition of Investments to Measure the Cost of Credit Constraints," The Review of Economics and Statistics, MIT Press, vol. 98(5), pages 913-924, December.
    17. Lou, Zhaohui & Xie, Qizhuo & Shen, Jim Huangnan & Lee, Chien-Chiang, 2024. "Does Supply Chain Finance (SCF) alleviate funding constraints of SMEs? Evidence from China," Research in International Business and Finance, Elsevier, vol. 67(PA).
    18. Afrifa, Godfred & Tingbani, Ishmael, 2017. "Working Capital Management, Cash Flow and SMEs’ Performance," MPRA Paper 82894, University Library of Munich, Germany, revised Oct 2017.
    19. Shuyun May Li, 2008. "Employment Flows with Endogenous Financing Constraints," Department of Economics - Working Papers Series 1045, The University of Melbourne.
    20. Williamson, Rohan & Yang, Jie, 2021. "Tapping into financial synergies: Alleviating financial constraints through acquisitions," Journal of Corporate Finance, Elsevier, vol. 68(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    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:gam:jmathe:v:10:y:2022:i:4:p:666-:d:754297. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.