Corporate Debt Value with Switching Tax Benefits and Payouts
This paper analyzes a structural model of corporate debt in the spirit of Leland (1994) model within a more realistic general context where payouts and asymmetric tax-code provisions are introduced. We analytically derive the value of the tax benefit claim in this context and study the joint effect of tax asymmetry and payouts on optimal corporate financing decisions. Results show a quantitatively significant impact on both optimal debt issuance and leverage ratios, thus providing a way to explain differences in observed leverage across firms.
|Date of creation:||Dec 2011|
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- Leland, Hayne E & Toft, Klaus Bjerre, 1996.
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- Hayne E. Leland., 1998. "Agency Costs, Risk Management, and Capital Structure," Research Program in Finance Working Papers RPF-278, University of California at Berkeley.
- Gerber, Hans U. & Shiu, Elias S.W., 1994. "Martingale Approach to Pricing Perpetual American Options," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 24(02), pages 195-220, November.
- John R. Graham & Clifford W. Smith, 1999. "Tax Incentives to Hedge," Journal of Finance, American Finance Association, vol. 54(6), pages 2241-2262, December. Full references (including those not matched with items on IDEAS)
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