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The Character and Determinants of Corporate Capital Gains

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Abstract

This paper analyzes how corporate capital gains taxes affect the capital gain realization decisions of firms. The paper outlines the tax treatment of corporate capital gains, the consequent incentives for firms with gains and losses, the efficiency consequences of these taxes in the context of other taxes and capital market distortions, and the response of firms to these incentives. Despite receiving limited attention, corporate capital gain realizations have averaged 30 percent of individual capital gain realizations over the last fifty years and have increased dramatically in importance over the last decade. By 1999, the ratio of net long-term capital gains to income subject to tax was 21 percent and was distributed across a variety of industries suggesting the importance of realization behavior to corporate financing decisions. Time-series analysis of aggregate realization behavior demonstrates that corporate capital gains taxes impact realization behavior significantly. Similarly, an analysis of firm-level investment and property, plant, and equipment (PPE) disposal decisions and gain recognition behavior similarly suggests an important role for these taxes in determining when firms raise money by disposing of assets and realizing gains.

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  • Mihir A. Desai & William M. Gentry, 2003. "The Character and Determinants of Corporate Capital Gains," Department of Economics Working Papers 2003-04, Department of Economics, Williams College.
  • Handle: RePEc:wil:wileco:2003-04
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    Cited by:

    1. Hoffmann, Steffen, 2015. "Die steueroptimale Anlegerstrategie bei Wertpapieren und die zugehörige Grenzpreisbestimmung," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 660, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    2. Alberto Galasso & Mark Schankerman & Carlos J. Serrano, 2011. "Trading and Enforcing Patent Rights," NBER Working Papers 17367, National Bureau of Economic Research, Inc.
    3. Mihir A. Desai & Li Jin, 2007. "Institutional Tax Clienteles and Payout Policy," NBER Working Papers 13283, National Bureau of Economic Research, Inc.
    4. Desai, Mihir A. & Dharmapala, Dhammika, 2006. "Corporate tax avoidance and high-powered incentives," Journal of Financial Economics, Elsevier, vol. 79(1), pages 145-179, January.
    5. Rünger, Silke, 2011. "The effect of Germany's Tax Reform Act 2001 on corporate ownership: Insights from disposals of minority blocks," arqus Discussion Papers in Quantitative Tax Research 114, arqus - Arbeitskreis Quantitative Steuerlehre.
    6. Desai, Mihir A. & Jin, Li, 2011. "Institutional tax clienteles and payout policy," Journal of Financial Economics, Elsevier, vol. 100(1), pages 68-84, April.
    7. Sally Wallace & James Alm, 2004. "The Jamaican Individual Income Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0430, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    8. Galasso, Alberto & Schankerman, Mark & Serrano, Carlos J., 2013. "Trading and enforcing patent rights," LSE Research Online Documents on Economics 51080, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    Capital gains; capital gains taxation; corporate taxation;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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