Corporation income taxes and the cost of capital: A revision
The value of debt tax shields in foundational corporate valuation models by Nobel Laureates Modigliani and Miller (MM) continues to be a controversial issue that is central to our understanding of corporate finance. Rather than discounting debt interest payments using a riskless interest rate or unl...
- Autores:
- Tipo de recurso:
- Fecha de publicación:
- 2012
- Institución:
- Universidad Tecnológica de Bolívar
- Repositorio:
- Repositorio Institucional UTB
- Idioma:
- eng
- OAI Identifier:
- oai:repositorio.utb.edu.co:20.500.12585/9094
- Acceso en línea:
- https://hdl.handle.net/20.500.12585/9094
- Palabra clave:
- Capital structure
Firm valuation
Share valuation
Value of tax shields
- Rights
- restrictedAccess
- License
- http://creativecommons.org/licenses/by-nc-nd/4.0/
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Corporation income taxes and the cost of capital: A revision |
| dc.title.alternative.none.fl_str_mv |
Impuesto a la renta corporativa y el costo de capital: Una revisión |
| title |
Corporation income taxes and the cost of capital: A revision |
| spellingShingle |
Corporation income taxes and the cost of capital: A revision Capital structure Firm valuation Share valuation Value of tax shields |
| title_short |
Corporation income taxes and the cost of capital: A revision |
| title_full |
Corporation income taxes and the cost of capital: A revision |
| title_fullStr |
Corporation income taxes and the cost of capital: A revision |
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Corporation income taxes and the cost of capital: A revision |
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Corporation income taxes and the cost of capital: A revision |
| dc.subject.keywords.none.fl_str_mv |
Capital structure Firm valuation Share valuation Value of tax shields |
| topic |
Capital structure Firm valuation Share valuation Value of tax shields |
| description |
The value of debt tax shields in foundational corporate valuation models by Nobel Laureates Modigliani and Miller (MM) continues to be a controversial issue that is central to our understanding of corporate finance. Rather than discounting debt interest payments using a riskless interest rate or unlevered equity rate, the present paper proposes the use of the levered cost of equity. Assuming no bankruptcy risk and no personal taxes, our revised tax model yields an inverted U-shaped firm value function with an interior optimal capital structure. Analyses are extended to Miller's personal tax extension of MM's tax model. Also, implications to corporate capital structure decisions and previous literature are discussed. |
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2012 |
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2020-03-26T16:32:56Z |
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Innovar; Vol. 22, Núm. 46; pp. 53-70 |
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01215051 |
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https://hdl.handle.net/20.500.12585/9094 |
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Universidad Tecnológica de Bolívar |
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Repositorio UTB |
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Innovar; Vol. 22, Núm. 46; pp. 53-70 01215051 Universidad Tecnológica de Bolívar Repositorio UTB 6602573876 6503847935 |
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https://hdl.handle.net/20.500.12585/9094 |
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eng |
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2020-03-26T16:32:56Z2020-03-26T16:32:56Z2012Innovar; Vol. 22, Núm. 46; pp. 53-7001215051https://hdl.handle.net/20.500.12585/9094Universidad Tecnológica de BolívarRepositorio UTB66025738766503847935The value of debt tax shields in foundational corporate valuation models by Nobel Laureates Modigliani and Miller (MM) continues to be a controversial issue that is central to our understanding of corporate finance. Rather than discounting debt interest payments using a riskless interest rate or unlevered equity rate, the present paper proposes the use of the levered cost of equity. Assuming no bankruptcy risk and no personal taxes, our revised tax model yields an inverted U-shaped firm value function with an interior optimal capital structure. Analyses are extended to Miller's personal tax extension of MM's tax model. Also, implications to corporate capital structure decisions and previous literature are discussed.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-s2.0-84874367463&partnerID=40&md5=319b11142379d1b435712660c5ebb8faCorporation income taxes and the cost of capital: A revisionImpuesto a la renta corporativa y el costo de capital: Una revisióninfo:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersionArtículohttp://purl.org/coar/version/c_970fb48d4fbd8a85http://purl.org/coar/resource_type/c_2df8fbb1Capital structureFirm valuationShare valuationValue of tax shieldsKolari J.W.Vélez-Pareja I.Andrade, G., Kaplan, S.N., How costly is financial (not economic) distress? Evidence from highly levered transactions that became distressed (1998) Journal of Finance, 53, pp. 1443-1493Arzac, E.R., Glosten, L.R., A reconsideration of tax shield valuation (2005) European Financial Management, 11, pp. 453-461Baker, M., Wurgler, J., Market timing and capital structure (2002) Journal of Finance, 57, pp. 1-32Benninga, S., Sarig, O., (1997) Corporate Finance: A Valuation Approach, , McGraw-Hill, New YorkBenninga, S., (2006) Principles of Finance With Excel, , Oxford University Press, New YorkBooth, L., Aivazian, V., Demirgüç, A., Maksimovic, V., Capital structures in developing countries (2001) Journal of Finance, 56, pp. 87-130Bradley, M., Jarrell, G., Kim, E.H., On the existence of an optimal capital structure (1984) Journal of Finance, 39, pp. 857-878Brealey, R.A., Myers, S.C., (2003) Principles of Corporate Finance, , McGraw-Hill, New YorkChen, A.H., Kim, E.H., Theories of corporate debt policy: A synthesis (1979) Journal of Finance, 34, pp. 371-384Cooper, I.A., Nyborg, K.G., The value of tax shields IS equal to the present value of tax shields (2006) Journal of Financial Economics, 81, pp. 215-225Damodaran, A., (2006) Damodaran On Valuation, , 2nd ed., John Wiley & Sons, New YorkDeangelo, H., Masulis, R., Optimal capital structure under corporate and personal taxation (1980) Journal of Financial Economics, 8, pp. 3-29Fama, E., French, K., Taxes, financing costs, and firm value (1998) Journal of Finance, 53, pp. 819-843Fernandez, P., The value of tax shields is NOT equal to the present value of tax shields (2004) Journal of Financial Economics, 73, pp. 145-165Fernandez, P., A more realistic valuation: Adjusted present value and WACC with constant book leverage ratio (2007) Journal of Applied Finance, 17, pp. 13-20Frank, M.Z., Goyal, V.K., Trade-off and pecking order theories of debt (2008) Handbook of Corporate Finance: Empirical Corporate Finance, 2. , In B. 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(1989) Financial Management, 18, pp. 29-38Wrightsman, D., Tax shield valuation and the capital structure decision (1978) Journal of Finance, 33, pp. 650-656http://purl.org/coar/resource_type/c_6501THUMBNAILMiniProdInv.pngMiniProdInv.pngimage/png23941https://repositorio.utb.edu.co/bitstream/20.500.12585/9094/1/MiniProdInv.png0cb0f101a8d16897fb46fc914d3d7043MD5120.500.12585/9094oai:repositorio.utb.edu.co:20.500.12585/90942021-02-02 14:07:46.179Repositorio Institucional UTBrepositorioutb@utb.edu.co |