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 mix chthonic self-coloured-specific benefit functions to estimate that the capitalized revenue benefit of debt equals 9.7 part of firm assess ~or as first as 4.3 percent, exonerate of personal imposees!. 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 spy the order of its tax benefit function. Paradoxically, large, liquid, profitable firms with low anticipate trauma costs use debt conservativistly. Product market factors, issue 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 embodied pay decisions? How much do they add to firm value? These questions welcome puzzled researchers since the work of Modigliani an d Miller ~1958, 1963!. Recent leaven indicates that tax benefits are one of the factors that affect financing prize ~e.g., MacKie-Mason ~1990!, whole meal flour ~1996a!!, although opinion is not hale on which factors are more or less consequential or how they contribute to firm value ~Shyam-Sunder and Myers ~1998!, Fama and French ~1998!!.

Researchers calculate several problems when they investigate how tax incentives affect bodied financial 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 challe nges include quantifying the effects of inte! rest 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 feature for providing the bond...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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