Tax shields, financial expenses and losses carried forward

Vélez–Pareja, Ignacio

doi:10.15446/cuad.econ.v35n69.54352

Cited by 11 publications

(14 citation statements)

References 41 publications

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“…Calculation of the value of tax shield is not only based on the interest, but in practice it is much more complicated. If the loss carried forward is allowed, according to Velez-Pareja [10] the tax shield does not reduce the tax liability in just one period, but its part is transferred to another future period when the loss is carried forward. In simplified terms, the value of tax shield is equal to the formula…”

Section: Literature Review 21 Valuation Of Tax Shieldmentioning

confidence: 99%

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: Literature Review 21 Valuation Of Tax Shieldmentioning

confidence: 99%

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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“…There are two extreme positions: a) Modigliani and Miller (1963) propose discounting tax savings at the risk free rate; b) Ezzell (1980, 1985) propose discounting tax savings at the debt yield during the first year, and discounting at the cost of capital of an unleveraged firm " for the following years. There are also some middle ground positions (Taggart, 1991;Inselbag & Kaufold, 1997;Tham & Wonder, 2001;Tham & Velez Pareja, 2001;Tham & Wonder, 2002;Booth, 2002;Farber, Gillet & Szafarz, 2006;Cooper & Nyborg, 2006;Oded & Michel, 2007;Velez Pareja, 2016). It is held that tax savings are conditioned by the capital structure objective whether by maintaining a fixed debt present value (Modigliani & Miller, 1963) or by keeping a fixed debt/equity market ratio (Miles & Ezzell, 1980, 1985.…”

Section: Tax Savings Present Value As An Option Portfolio and The Edgmentioning

confidence: 99%

Untitled

2019

Eur. Account. Manag. Rev.

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The European Accounting and Management Review (EAMR) is a peer-reviewed journal that aims to contribute to the advancement of scientific and technical knowledge in the fields of accounting and management, through publishing of research papers, including those which analyze problems of the research activities in these disciplines. EAMR articles are built in a framework of a theory and contribute to management practice using a variety of empirical methods (quantitative, qualitative, field, laboratory, meta-analytic, and combination). Research papers written from the theoretical and methodological perspective of other disciplines-such as economics, industrial engineering, law, management science, operations and other social sciences-are accepted as long as they include an interface with accounting and management and contribute to the study and understanding of organizations. Work published should be of interest of accountants and organizational experts, whether they work in industry, the public sector, in consulting, or in academic institutions. EAMR is published by the Catalan Association of Accounting and Management (Associació Catalana de Comptabilitat i Direcció, ACCID), an association founded in 2002 with the intention of becoming a nexus for professionals and academics working in the field of accounting and management. Currently, ACCID has more than 10.000 associate members and is oriented towards the following objectives: Improving the transparency of financial information, the promotion of best practices in the disclosure of financial information. The existence of a platform for debate and opinion about accounting issues, the promotion of research and the dissemination of new developments regarding accounting and management and, finally, the organization of conferences, seminars and conferences. EAMR provides authors and academics many benefits, such as free PDFs of the articles published, special discounts for ACCID publications and much more.

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“…The tax shield is also affected by the tax system and corporate and personal tax rate or loss carried forward, which affects the effective tax rate and tax burden [38][39][40].…”

Section: Emerging Markets Finance and Tax Shield Valuationmentioning

confidence: 99%