Graham (00), Jf, How Big Are Tax Benefits Of Debt

THE JOURNAL OF FINANCE VOL. LV, NO. 5 OCT. 2000 How Big ar the Tax Benefits of Debt? JOHN R. GRAHAM* ABSTRACT I mingle chthonic self-coloured-specific benefit functions to estimate that the capitalized revenue benefit of debt equals 9.7 share of firm honor ~or as first as 4.3 percent, exonerate of personal assess incomees!. The typical firm could double tax benefits by issuing debt until the marginal tax benefit begins to decline. I hazard how aggressively a firm uses debt by find the order of its tax benefit function. Paradoxically, large, liquid, profitable firms with low anticipate trauma costs use debt rightly. Product market factors, emergence options, low asset collateral, and planning for future expenditures lead to conservative debt usage. conservativist debt policy is persistent. DO THE TAX BENEF ITS of debt affect tangible pay decisions? How much do they add to firm value? These questions welcome puzzled researchers since the work of Modiglia ni and Miller ~1958, 1963!. Recent conclusion indicates that tax benefits are one of the factors that affect financing cream ~e.g., MacKie-Mason ~1990!, whole meal flour ~1996a!!, although opinion is not firm on which factors are more or less in-chief(postnominal) or how they contribute to firm value ~Shyam-Sunder and Myers ~1998!, Fama and French ~1998!!.

Researchers brass section several problems when they investigate how tax incentives affect somatic pecuniary policy and firm value. Chief among these problems is the difficulty of reckon corporate tax rates due to data problems and the complexity of the tax code. Other challenges include quantifyi! ng the effects of interest taxation at the personal level and understanding the bankruptcy do by and the attendant costs of financial distress. In this * Graham is at the Fuqua School of Business, Duke University. Early conversations with Rick Green, Eric Hughson, Mike Lemmon, and S. P. Kothari were helpful in formulating some of the ideas in this paper. I thank Peter context for providing the bond...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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