Comment on “The value of tax shields is NOT equal to the present value of tax shields”

Fieten, Paul; Kruschwitz, Lutz; Laitenberger, Jörg; Löffler, Andreas; Tham, Joseph; Vélez–Pareja, Ignacio; Wonder, Nicholas X.

doi:10.1016/j.qref.2004.07.004

Cited by 40 publications

(20 citation statements)

References 2 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: 81%

“…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: 81%

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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“…Taxes paid by unlevered companies have a lower risk than ECF (hence a different discount rate). There is further criticism on the combination of two different approaches (zero growth and non-zero growth) [26]. Cooper and Nyborg argued that Fernandez developed the model based on the combination of two different approaches (MM and ME) and therefore the value of tax shield is equal to the present value of tax shield.…”

Section: Fernandez Modelmentioning

confidence: 99%

Review of Tax Shield Valuation and Its Application to Emerging Markets Finance

Klieštik¹,

Michalkova²

2018

Financial Management From an Emerging Market Perspective

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“…Even though there is still an ongoing debate about the calculation of the value of the tax shield (see e.g. Fernandez, 2004Fernandez, , 2005Fieten et al, 2005;Cooper and Nyborg, 2006), the proposed tax advantage of debt would empirically imply a corner solution. Miller (1977) develops a broader perspective on tax incentives by explicitly integrating personal income taxation into his model.…”

Section: Capital Structure Choice and Taxationmentioning

confidence: 99%

The Impact of Personal and Corporate Taxation on Capital Structure Choices

Overesch¹,

Voeller²

2010

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Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp08020.pdf Non-Technical SummaryCapital structure adjustments can be used to reduce the total tax burden on company investment since the taxation of the return on equity and debt capital differs in most countries. At the corporate level, interest payments reduce taxable profits while such a deduction is not feasible in the case of equity financing. At the shareholder level, effective tax rates on dividend and interest income differ as well. Therefore, the relative tax benefits of different sources of finance are supposed to have an impact on financing decisions.Theory suggests that both corporate profit tax and personal capital income taxes shouldbe considered in order to analyze the tax impact on capital structure choices.Since previous literature mainly focuses on the taxation of corporate profits, empirical evidence with respect to the possible impact of personal capital income taxation on capital structure choices is still scarce. Therefore, this paper aims at analyzing the effects from different taxation of equity and debt on capital structures of European firms while taking into account both personal and corporate income taxation. For the empirical analysis we employ a rich panel of firm-level financial accounting data of companies located in 23 European countries, taken from the AMADEUS data base. In contrast to other recent papers, we focus mainly on stand-alone companies. Furthermore, we collect detailed information about the tax systems of the considered countries during the period from 2000 until 2005.The empirical results suggest that a higher tax benefit of debt has the expected significant positive impact on companies' financial leverage. Additional analysis confirms that debt ratios are affected by personal income taxation: the level of dividend taxes has a positive impact on the debt to assets ratio, whereas the taxation of personal interest income negatively affects corporate leverage. In addition, we find evidence that the capital structures of smaller companies react more heavily to higher tax benefits of debt. In contrast, this tax benefit only has a minor impact on the financial decisions of parent companies belonging to a group of affiliated firms. Zusammenfassung (Summary in German)

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Comment on “The value of tax shields is NOT equal to the present value of tax shields”

Cited by 40 publications

References 2 publications

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

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

Review of Tax Shield Valuation and Its Application to Emerging Markets Finance

The Impact of Personal and Corporate Taxation on Capital Structure Choices

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