A Reconsideration of Tax Shield Valuation

Arzac, Enrique R.; Glosten, Lawrence R.

doi:10.2139/ssrn.492603

Cited by 17 publications

(7 citation statements)

References 12 publications

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“…Fernandez (2004Fernandez ( , 2005Fernandez ( , 2007 and Massari et al (2008), among others, support the underlying assumptions made in (2), while Arzac and Glosten (2005), Cooper and Nyborg (2006), Fieten et al (2005), and Tham and Vélez-Pareja (2004) argue that (3) is the correct derivation of ˇu.…”

Section: Unlevered Betas and Proxy Methodsmentioning

confidence: 83%

“…A number of papers, including Miles and Ezzell (1980), Miles and Ezzell (1985), Conine (1980), R. D. Cohen (2003), Arzac and Glosten (2005), Fieten et al (2005), Taggart (1991) and Cooper and Nyborg (2006) have criticised the validity of Hamada's model unrealistic assumptions and provided some solutions. However, both arguments, in favour of Hamada formula or against it, have been largely limited to theoretical issues with little consensus, making little reference to the empirical implications of this conundrum.…”

Section: Literature Reviewmentioning

confidence: 99%

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Unlevered betas and the cost of equity capital: An empirical approach

Sarmiento-Sabogal

Sadeghi

2014

The North American Journal of Economics and Finance

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Section: Unlevered Betas and Proxy Methodsmentioning

confidence: 83%

Section: Literature Reviewmentioning

confidence: 99%

Unlevered betas and the cost of equity capital: An empirical approach

Sarmiento-Sabogal

Sadeghi

2014

The North American Journal of Economics and Finance

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“…Regarding the cash flows, we define the company's Free Cash Flow (FCF) and Equity Free Cash Flow (FTE) in the usual way (Arzac and Glosten, 2005):…”

Section: Valuation Frameworkmentioning

confidence: 99%

“…In case of a constant leverage financial policy, these formulas are specified as (see Ezzell, 1980, 1985;Arzac and Glosten, 2005)…”

Section: Valuation Frameworkmentioning

confidence: 99%

Investment distortions and the value of the government's tax claim

Kreutzmann

Sievers

Mueller

2013

Applied Financial Economics

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This article integrates the government in the context of company valuation. Our framework allows to analyse and to quantify the risk-sharing effects and conflicts of interest between the government and the shareholders when firms follow different financial policies. We provide novel evidence that firms with fixed future levels of debt might invest more than socially desirable. Economically, this happens if the gain in tax shields is big enough to outweigh the loss in the unlevered firm value. Our findings have implications for the practice of investment subsidy programmes provided by the government to avoid fostering investments beyond the socially optimal level.

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“…This rate can be much lower than the return expected on its unlevered equity. This result is new since the literature on tax shields valuation -including recent contributions by Fernandez (2004), Arzac and Glosten (2005), Cooper and Nyborg (2006), Grinblatt and Liu (2008), Liu (2009), Qi (2011) and Barbi (2012) -has never specifically considered the case of multinational firms.…”

Section: Introductionmentioning

confidence: 99%

A simple approach to valuing a multinational firm's tax shields

Pierru

Atallah

2013

Applied Financial Economics

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We consider a multinational firm that seeks to maximize its total amount of interest tax shield while following a constant debt ratio policy on a global level. The firm's total interest tax shield can then be considered as a piecewise-linear increasing function that is concave with respect to the firm's value. As a result, the expected interest tax shield can be much safer than the firm's free cash flow, depending on the firm's current value. With a simple no-arbitrage model, we derive the discount factor to apply to the total interest tax shield expected by the multinational firm. We show that this formula generalizes standard results of the literature on interest tax shields valuation.

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A Reconsideration of Tax Shield Valuation

Cited by 17 publications

References 12 publications

Unlevered betas and the cost of equity capital: An empirical approach

Unlevered betas and the cost of equity capital: An empirical approach

Investment distortions and the value of the government's tax claim

A simple approach to valuing a multinational firm's tax shields

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