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Taxes, Investment and Q

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  • J. S. S. Edwards
  • M. J. Keen

Abstract

This paper attempts to provide a unified analysis of the effects of taxation on the equilibrium value of marginal q under alternative financial policies. It is shown that the q approach does not avoid all the specification problems associated with analyses based on the cost of capital. The (theoretically and empirically) crucial relationship between average and marginal q is also examined, and it is shown that, under UK and US tax rules, the possibility of winding up precludes persistent undervaluation in equilibrium.

Suggested Citation

  • J. S. S. Edwards & M. J. Keen, 1985. "Taxes, Investment and Q," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(4), pages 665-679.
    • Handle: RePEc:oup:restud:v:52:y:1985:i:4:p:665-679.
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    File URL: http://hdl.handle.net/10.2307/2297738
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    Citations

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    Cited by:

    1. Michael P. O'Malley, "undated". "Tax Exhaustion, Firm Investment, and Leasing: A Test of the Q Model of Investment," Finance and Economics Discussion Series 1996-31, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.
    2. Kari Takala & Matti Tuomala, 1990. "Housing investment in Finland," Finnish Economic Papers, Finnish Economic Association, vol. 3(1), pages 41-53, Spring.
    3. Michael Devereux & Fabio Schiantarelli, 1990. "Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 279-306, National Bureau of Economic Research, Inc.
    4. Michael P. O'Malley, 1996. "Tax exhaustion, firm investment, and leasing; a test of the Q model of investment," Finance and Economics Discussion Series 96-31, Board of Governors of the Federal Reserve System (U.S.).
    5. 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.
    6. Michel Bua & Philippe Girard & Thierry Pujol & Philippe Redondo, 1989. "La politique de distribution de dividendes (1982-1986)," Économie et Prévision, Programme National Persée, vol. 88(2), pages 57-72.
    7. Hovick Shanazarian, 2006. "Corporate Financial Dynamics: A Pecking-Order Approach," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(4), pages 516-534, February.

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