Risky tax shields and risky debt: An exploratory study
This article (1) identifies three sources of risk for tax shields (TS): Two of them are associated with debt risk and one is associated with operating risk. (2) A set of conditions for defining risky debt associated with cash flow, not with earnings, is presented. (3) It further shows that realizati...
- Autores:
- Tipo de recurso:
- Fecha de publicación:
- 2010
- Institución:
- Universidad Tecnológica de Bolívar
- Repositorio:
- Repositorio Institucional UTB
- Idioma:
- eng
- OAI Identifier:
- oai:repositorio.utb.edu.co:20.500.12585/9119
- Acceso en línea:
- https://hdl.handle.net/20.500.12585/9119
- Palabra clave:
- Cash flows
Discount rate for tax shields
Firm valuation
Montecarlo simulation
Tax shields
Weighted average cost of capital
- Rights
- restrictedAccess
- License
- http://creativecommons.org/licenses/by-nc-nd/4.0/
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Risky tax shields and risky debt: An exploratory study |
| dc.title.alternative.none.fl_str_mv |
Estudios fiscals riesgosos y deuda con riesgo: Un studio exploratorio |
| title |
Risky tax shields and risky debt: An exploratory study |
| spellingShingle |
Risky tax shields and risky debt: An exploratory study Cash flows Discount rate for tax shields Firm valuation Montecarlo simulation Tax shields Weighted average cost of capital |
| title_short |
Risky tax shields and risky debt: An exploratory study |
| title_full |
Risky tax shields and risky debt: An exploratory study |
| title_fullStr |
Risky tax shields and risky debt: An exploratory study |
| title_full_unstemmed |
Risky tax shields and risky debt: An exploratory study |
| title_sort |
Risky tax shields and risky debt: An exploratory study |
| dc.subject.keywords.none.fl_str_mv |
Cash flows Discount rate for tax shields Firm valuation Montecarlo simulation Tax shields Weighted average cost of capital |
| topic |
Cash flows Discount rate for tax shields Firm valuation Montecarlo simulation Tax shields Weighted average cost of capital |
| description |
This article (1) identifies three sources of risk for tax shields (TS): Two of them are associated with debt risk and one is associated with operating risk. (2) A set of conditions for defining risky debt associated with cash flow, not with earnings, is presented. (3) It further shows that realization of TS for finite cash flows in a period of time t is correlated with Earnings before Interest and Taxes (EBIT) plus Other Income (EBITO), not with interest expenses at time t. With the results of a Montecarlo Simulation the behavior of TS, Cash Flow to Debt and EBITO are examined. In conclusion, the article suggests that it is not reasonable to define the risk of TS as measured by a single discount rate, but rather as a mix of debt risk and operating risk. |
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2010 |
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2010 |
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2020-03-26T16:32:59Z |
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2020-03-26T16:32:59Z |
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Artículo |
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Cuadernos de Administracion; Vol. 23, Núm. 41; pp. 213-235 |
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0120-3592 |
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https://hdl.handle.net/20.500.12585/9119 |
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Universidad Tecnológica de Bolívar |
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Repositorio UTB |
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6503847935 |
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Cuadernos de Administracion; Vol. 23, Núm. 41; pp. 213-235 0120-3592 Universidad Tecnológica de Bolívar Repositorio UTB 6503847935 |
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https://hdl.handle.net/20.500.12585/9119 |
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eng |
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2020-03-26T16:32:59Z2020-03-26T16:32:59Z2010Cuadernos de Administracion; Vol. 23, Núm. 41; pp. 213-2350120-3592https://hdl.handle.net/20.500.12585/9119Universidad Tecnológica de BolívarRepositorio UTB6503847935This article (1) identifies three sources of risk for tax shields (TS): Two of them are associated with debt risk and one is associated with operating risk. (2) A set of conditions for defining risky debt associated with cash flow, not with earnings, is presented. (3) It further shows that realization of TS for finite cash flows in a period of time t is correlated with Earnings before Interest and Taxes (EBIT) plus Other Income (EBITO), not with interest expenses at time t. With the results of a Montecarlo Simulation the behavior of TS, Cash Flow to Debt and EBITO are examined. In conclusion, the article suggests that it is not reasonable to define the risk of TS as measured by a single discount rate, but rather as a mix of debt risk and operating risk.Recurso electrónicoapplication/pdfenghttp://creativecommons.org/licenses/by-nc-nd/4.0/info:eu-repo/semantics/restrictedAccessAtribución-NoComercial 4.0 Internacionalhttp://purl.org/coar/access_right/c_16echttps://www.scopus.com/inward/record.uri?eid=2-s2.0-79953805755&partnerID=40&md5=4a3730687803ed395196cf531201507dRisky tax shields and risky debt: An exploratory studyEstudios fiscals riesgosos y deuda con riesgo: Un studio exploratorioinfo:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersionArtículohttp://purl.org/coar/version/c_970fb48d4fbd8a85http://purl.org/coar/resource_type/c_2df8fbb1Cash flowsDiscount rate for tax shieldsFirm valuationMontecarlo simulationTax shieldsWeighted average cost of capitalVélez-Pareja I.Arzac, E.R., Glosten, L.R., A Reconsideration of Tax Shield Valuation (2005) European Financial Management, 11 (4), pp. 453-461(2006) International Convergence of Capital Measurement and Capital Standards a Revised Framework, , www.bis.org/publ/bcbs128.pdf, Bank for International Settlements, Basel Committee on Banking Supervision, Retrieved on November 29, 2010Brealey, R.A., Myers, S.C., (2003) Principles of Corporate Finance, , 7th ed, New York: Mc-Graw-HillCordes, J.J., Sheffrin, S.M., Estimating the Tax Advantage of Corporate Debt (1983) The Journal of Finance, 38 (1), pp. 95-105Dammon, R.M., Senbet, L.W., The Effect of Taxes and Depreciation on Corporate Investment and Financial Leverage (1988) The Journal of Finance, 43 (2), pp. 357-373Damodaran, A., (2002) Investment Valuation, , http://pages.stern.nyu.edu/~adamodar/pdfiles/valn2ed/ch15.pdf, 2nd Ed, Hoboken, N.J.: John Wiley & SonsDamodaran, A., Valuation Approaches and Metrics: A Survey of the Theory and Evidence (2005) Foundations and Trends In Finance, 1 (8), pp. 693-784. , http://pages.stern.nyu.edu/~adamodar/pdfiles/papers/valuesurvey.pdfDíaz, G., Vélez-Pareja, I., (2010) Estimating the Appropriate Risk Profile For the Tax Savings: A Contingent Claim Approach, , http://ssrn.com/abstract=1667621, Working paperLey 55: Solo 10 Empresas Salvadas, , http://www.eltiempo.com/archivo/documento/MAM-1591980, El Tiempo (2004, August 10), Retrieved on Nov 2, 2010Fama, E.F., French, K.R., Taxes, Financing Decisions, and Firm Value (1998) The Journal of Finance, 53 (3), pp. 819-843Grabowski, R.J., Problems with Cost of Capital Estimation in the Current Environment (2009) Journal of Applied Research In Accounting and Finance (JARAF), 4 (1), pp. 31-40Graham, J.R., How big are the tax benefits of debt? (2000) The Journal of Finance, 55 (5), pp. 1901-1941Harris, R.S., Pringle, J.J., Risk-Adjusted Discount Rates-Extensions from the Average-Risk Case (1985) Journal of Financial Research, 8, pp. 237-244Kaplan, S.N., Ruback, R.S., The Valuation of Cash Flow Forecasts: An Empirical Analysis (1995) The Journal of Finance, 50 (4), pp. 1059-1093Kemsley, D., Nissim, D., Valuation of the Debt Tax Shield (2002) The Journal of Finance, 57 (5), pp. 2045-2073Kolari, J.W., Vélez-Pareja, I., (2010) Corporation Income Taxes and The Cost of Capital: A Revision, , http://papers.ssrn.com/abstract=1715044, Working paperLewellen, W.G., Emery, D.R., Corporate Debt Management and the Value of the Firm (1986) The Journal of Financial and Quantitative Analysis, 21 (4), pp. 415-426Luehrman, T., Using APV: A Better Tool for Valuating Operations (1997) Harvard Business Review, pp. 145-154. , May-JuneMiles, J.A., Ezzell, J.R., Reformulating Tax Shield Valuation: A Note (1985) The Journal of Finance, 40 (5), pp. 1485-1492Modigliani, F., Miller, M.H., The Cost of Capital, Corporation Taxes and the Theory of Investment (1958) The American Economic Review, 48, pp. 261-297Modigliani, F., Corporate Income Taxes and the Cost of Capital: A Correction (1963) American Economic Review, 53 (3), pp. 443-453Myers, S.C., Interactions of Corporate Financing and Investment Decisions-Implications for Capital Budgeting (1974) The Journal of Finance, 29 (1), pp. 1-25Newbould, G.D., Chatfield, R.E., Anderson, R.F., Leveraged Buyouts and Tax Incentives (1992) Financial Management, 21 (1), pp. 50-57Ruback, R.S., Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows (2002) Financial Management, 31 (2), pp. 85-103(2010) Sirem, , http://sirem.supersociedades.gov.co/SIREM/index.jsp, Superintendencia de Sociedades, Retrieved on June 11, 2010Taggart Jr., R.A., Consistent Valuation and Cost of Capital: Expressions with Corporate and Personal Taxes (1991) Financial Management (Autumn), pp. 8-20Talmor, E., Haugen, R., Barnea, A., The Value of the Tax Subsidy on Risky Debt (1985) The Journal of Business, 58 (2), pp. 191-202Tham, J., Vélez-Pareja, I., (2001) The Correct Discount Rate For the Tax Shield: The N-period Case (April), , http://ssrn.com/abstract=267962, doi:10.2139/ssrn.267962Tham, J., (2004) Principles of Cash Flow Valuation: An Integrated Market-based Approach, , Boston: Academic PressTham, J., Cost of Capital With Levered Cost of Equity As the Risk of Tax Shields, , http://ssrn.com/abstract=1655244, 2010, August 9, Working paper(2010) Table F-2: U.S. Bankruptcy Courts, , http://www.rib.uscourts.gov/Docs/Stats/table_f2.pdf, U.S. Courts, Retrieved on August 7, 2010(2010) Statistics of U.S. Businesses, Business Dynamics Statistics, Business Employment Dynamics, and Nonemployer Statistics, , http://www.sba.gov/advo/research/data.html, U.S. Small Business Administration, Retrieved on Nov. 2, 2010(2010) Private Firms, Establishments, Employment, Annual Payroll and Receipts By Firm Size, 1988-2007 [table], , http://www.sba.gov/advo/research/us88_07.pdf, U.S. Small Business Administration, Office of Advocacy, August 7, 2010Vélez-Pareja, I., Return to Basics: Are You Properly Calculating Tax Shields?, , http://ssrn.com/abstract=1306043, 2009, JulyVélez-Pareja, I., Calculating Tax Shields From Financial Expense With Losses Carried Forward, , http://ssrn.com/abstract=1604082, 2010, MayViana Rojas, J., Más empresas buscaron su salvación en el primer trimestrecrisis empezó a pasar cuenta de cobro Portafolio, , http://www.portafolio.com.co/economia/economiahoy/2009-05-11/ARTICULO-WE B-NOTA_INTERIOR_PORTA-5171194.html, 2009, May 11, Retrieved on Nov 2, 2010(2010) Total Businesses Registered (number), , http://data.worldbank.org/indicator/IC.BUS.TOTL, World Bank, Nov. 2, 2010Wrightsman, D., Tax Shield Valuation and the Capital Structure Decision (1978) The Journal of Finance, 33 (2), pp. 650-656http://purl.org/coar/resource_type/c_6501THUMBNAILMiniProdInv.pngMiniProdInv.pngimage/png23941https://repositorio.utb.edu.co/bitstream/20.500.12585/9119/1/MiniProdInv.png0cb0f101a8d16897fb46fc914d3d7043MD5120.500.12585/9119oai:repositorio.utb.edu.co:20.500.12585/91192021-02-02 14:41:00.803Repositorio Institucional UTBrepositorioutb@utb.edu.co |