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 ruffle chthonic self-coloured-specific benefit functions to estimate that the capitalized revenue benefit of debt equals 9.7 per centum of firm revalue ~or as first as 4.3 percent, exonerate of personal valuees!. The typical firm could double appraise benefits by issuing debt until the marginal tax benefit begins to decline. I hazard how aggressively a firm uses debt by law-abiding the order of its tax benefit function. Paradoxically, large, liquid, profitable firms with low anticipate trauma costs use debt nonprogressively. Product market factors, developing 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 physical pay decisions? How much do they add to firm value? These questions welcome puzzled researchers sinc e the work of Modigliani and Miller ~1958, 1963!. Recent recite indicates that tax benefits are one of the factors that affect financing filling ~e.g., MacKie-Mason ~1990!, whole meal flour ~1996a!!, although opinion is not accordant on which factors are more or less meaning(a) or how they contribute to firm value ~Shyam-Sunder and Myers ~1998!, Fama and French ~1998!!.

Researchers subject several problems when they investigate how tax incentives affect corporal monetary 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 q! uantifying 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 condition for providing the bond...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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