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Tax Asymmetries And Capital Structure Choices In Closely Held Firms

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  • Innes, Robert

Abstract

This paper presents a tax-based model of an entrepreneurial firm's capital structure choice problem, exposing the relevance of non-transferable tax deductions, "at risk" loss limitation, and related asymmetries in entrepreneurs' and investors' ability to exploit tax shields. While naive application of tax-based corporate capital structure theories implies all-equity financing of a closely-held enterprise, this analysis finds circumstances under which debt financing can be optimal.

Suggested Citation

  • Innes, Robert, 1988. "Tax Asymmetries And Capital Structure Choices In Closely Held Firms," Working Papers 225810, University of California, Davis, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucdavw:225810
    DOI: 10.22004/ag.econ.225810
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    References listed on IDEAS

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