Return to Basics: Are You Properly Calculating Tax Shields?

Vélez–Pareja, Ignacio

doi:10.2139/ssrn.1306043

Cited by 10 publications

(11 citation statements)

References 11 publications

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“…Table 3 shows the descriptive statistics of the examined variables. The results from Table 2 indicate that the highest value of the tax shield is achieved by enterprises when using the Modigliani and Miller model (1963), almost twice as large as for the models from Velez-Pareja [9] and [10]. In all three cases, the minimum value is the most common (modal) value.…”

Section: Resultsmentioning

confidence: 95%

“…(1) and (2) show that the tax shield is affected by three variables: corporate tax rate; cost of debt and the value of debt (the market value of debt). Velez-Pareja [9] argued, that the main source of tax savings is interest and EBIT and other income (OI) is less than the amount of financial expenses (FE), the company does not pay corporate income tax. Nevertheless it generates the partial tax shield.…”

Section: Literature Review 21 Valuation Of Tax Shieldmentioning

confidence: 99%

“…In this study, on the one hand, we quantified the value of the tax shield. Three models of tax shield value quantification were selected: Modigliani and Miller [8] for imperfect capital markets mentioned in Brealey, Myers and Allen [6] and two models from Velez-Pareja [9,10]. The formulas for their quantification are given in Eq.…”

Section: Sources Of Funding During the Business Life Cyclementioning

confidence: 99%

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Is the Value of the New Business Tax Shield Lower? Comparative Study of International Valuation Methods

Michalkova

Michalíková

2020

SHS Web Conf.

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The macroeconomic environment has been characterized by strong GDP growth in recent years. The favourable conditions allow the growth of new innovative businesses (start-ups), which support multiplier economic development. New businesses are often unprofitable in the first years of existence; there is a higher probability of default. The issue of start-ups may be insufficient funding, high costs of financial distress and resulting low corporate value and unattractiveness for investors. The aim of this paper is to analyse and evaluate which of the existing methods of quantifying the debt tax shield is suitable for start-ups. Three different approaches have been chosen to calculate the interest tax shield; Modigliani-Miller (1963) model for imperfect capital markets and two models from Velez-Pareja (2013,2016). The results were obtained by correlation analysis of more than 5,000 Slovak businesses, the impact of the age of the business on the value of tax shield was examined. Also, the impact of the industry on the value of tax shield was explored. The results of the analysis suggest that the quantification by Modigliani-Miller (1963) formula does not take sufficient into account of the age of company. In contrast, the Velez-Pareja (2013, 2016) models are suitable for start-ups, because they take into account the potential tax shield, which occurs when the operating income cannot cover financial costs (especially interest paid). In innovative industries, start-ups often do not reach the traditional tax shield, but their value may be higher using an alternative formula by Velez-Pareja.

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Section: Resultsmentioning

confidence: 95%

Section: Literature Review 21 Valuation Of Tax Shieldmentioning

confidence: 99%

Section: Sources Of Funding During the Business Life Cyclementioning

confidence: 99%

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Is the Value of the New Business Tax Shield Lower? Comparative Study of International Valuation Methods

Michalkova

Michalíková

2020

SHS Web Conf.

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“…This is, labour payments, depreciation, inflation adjustments to equity, rent and any expense if they are deductible." [31].…”

Section: Velez-pareja 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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“…De acuerdo con lo anterior, el hecho de no tener en cuenta el papel real de los ahorros fiscales puede llevar a una subestimación del WACC, dado que la tasa de descuento de los ahorros fiscales puede ser el costo del patrimonio desapalancado. (Velez-Pareja, 2013). …”

Section: Sánchez (2010) Explica Que Los Mayores Riesgos Que Afectan Lunclassified

Aplicación del Costo de Capital en las pymes en Colombia: una revisión

Londoño

Sánchez²

2017

Sci. Hum. Action

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El objetivo del presente trabajo es realizar una revisión de la literatura existente respecto al costo de capital en Colombia y específicamente a las pymes, con el fin de identificar los métodos utilizados y el uso de estas información al momento de buscar fuentes de financiación y optimizar la estructura financiera, para esto se realizó una búsqueda de los trabajos de investigación presentados en los últimos 10 años en el país, encontrando propuestas desde el punto de vista macroeconómico y financiero, posteriormente se realizó un recuento de estos a nivel nacional y aquellos enfocados en las pymes, para seleccionar uno de los modelos que mejor se adaptan a las condiciones del país y aplicarlo a las micro, pequeñas y medianas empresas del sector comercio al por mayor y por menor, donde se concluye que el modelo seleccionado cumple con el principio financiero del costo de la deuda menor al costo del patrimonio y con ajustes propuestos por otros autores es posible ajustarlo a la realidad de la economía nacional, entregando como resultado un costo de capital promedio de 9,09%, el cual se encuentra por encima de la inversión en bonos del tesoro a 10 años o la DTF.

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Return to Basics: Are You Properly Calculating Tax Shields?

Cited by 10 publications

References 11 publications

Is the Value of the New Business Tax Shield Lower? Comparative Study of International Valuation Methods

Is the Value of the New Business Tax Shield Lower? Comparative Study of International Valuation Methods

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

Aplicación del Costo de Capital en las pymes en Colombia: una revisión

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