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The Determination of Optimal Value of the Firm in the Short and Long Run by Fine Tuning the Debt Ratio and Payout Ratio under the New Dutch Income Tax Code


  • J.E.O. Renaud


The optimal value of the firm under the new Dutch income tax reform act in 2002, is reconsidered in this discussion paper. Tax shield of debt-financing and the aggregate tax payments of its joint investors are simultaneously considered. A more-period model is presented for making integrated decisions about the optimal capital structure and dividend policy. By considering the three parties involved: corporation, all individual investors and the Inland Revenue, the financing decision can be solved as a zero sum game. By simultaneously fine-tuning the debt and payout ratio, the model gives the conditions for maximizing firm’s value.

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  • J.E.O. Renaud, 2004. "The Determination of Optimal Value of the Firm in the Short and Long Run by Fine Tuning the Debt Ratio and Payout Ratio under the New Dutch Income Tax Code," Working Papers 04-07, Utrecht School of Economics.
  • Handle: RePEc:use:tkiwps:0407

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    References listed on IDEAS

    1. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
    2. Litzenberger, Robert H. & Ramaswamy, Krishna, 1979. "The effect of personal taxes and dividends on capital asset prices : Theory and empirical evidence," Journal of Financial Economics, Elsevier, vol. 7(2), pages 163-195, June.
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    capital structure; debt ratio and payout ratio; Dutch income tax; firm value; Ordered by external client;

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