Access the full text.
Sign up today, get DeepDyve free for 14 days.
Loading next page...
/lp/wiley/taxes-leverage-and-the-cost-of-equity-capital-ImkRyWeE8p
References (43)
-
MacKie‐Mason MacKie‐Mason (1990)
Do Taxes Affect Corporate Financing Decisions?Journal of Finance, 45
-
Graham Graham (1996a)
Debt and the Marginal Tax RateJournal of Financial Economics, 41
-
Hail Hail, Leuz Leuz (2006)
International Differences in Cost of Equity: Do Legal Institutions and Securities Regulation Matter?Journal of Accounting Research, 44
-
Ayers Ayers, Lefanowicz Lefanowicz, Robinson Robinson (2003)
Shareholder Taxes in Acquisition Premiums: The Effect of Capital Gains TaxationJournal of Finance, 58
-
Modigliani Modigliani, Miller Miller (1963)
Corporate Income Taxes and the Cost of Capital: A CorrectionAmerican Economic Review, 53
-
Graham Graham (1999)
Do Personal Taxes Affect Corporate Financing Decisions?Journal of Public Economics, 73
-
Claus Claus, Thomas Thomas (2001)
Equity Premia as Low as Three Percent? Evidence from Analysts' Earnings Forecasts for Domestic and International Stock MarketsJournal of Finance, 56
-
Lang Lang, Shackelford Shackelford (2000)
Capitalization of Capital Gains Taxes: Evidence from Stock Price Reactions to the 1997 Rate ReductionJournal of Public Economics, 76
-
Litzenberger Litzenberger, Ramaswamy Ramaswamy (1979)
The Effect of Personal Taxes and Dividends on Capital Asset PricesJournal of Financial Economics, 7
-
Ohlson Ohlson, Jüettner‐Narouth Jüettner‐Narouth (2005)
Expected EPS and EPS Growth as Determinants of ValueReview of Accounting Studies, 10
-
Dhaliwal Dhaliwal, Krull Krull, Li Li, Moser Moser (2005)
Dividend Taxes and Implied Cost of Equity CapitalJournal of Accounting Research
-
Fama Fama, French French (1998)
Taxes, Financing Decisions, and Firm ValueJournal of Finance, 53
-
Gode Gode, Mohanram Mohanram (2003)
Inferring the Cost of Equity Using the Ohlson‐Jüettner ModelReview of Accounting Studies, 8
-
Ayers Ayers, Lefanowicz Lefanowicz, Robinson Robinson (2004)
The Effect of Shareholder‐Level Capital Gains Taxes on Acquisition StructureThe Accounting Review, 79
-
Atlman Atlman (1968)
Financial Ratios, Discriminant Analysis and the Prediction of Corporate BankruptcyJournal of Finance, 23
-
Dhaliwal Dhaliwal, Trezevant Trezevant, Wang Wang (1992)
Taxes, Investment‐Related Tax Shields and Capital StructureJournal of the American Taxation Association
-
Botosan Botosan, Plumlee Plumlee (2002)
A Re‐Examination of Disclosure Level and the Expected Cost of EquityJournal of Accounting Research, 40
-
Brennan Brennan (1970)
Taxes, Market Valuation and Corporate Financial PolicyNational Tax Journal, 23
-
Fama Fama, French French (2001)
Disappearing Dividends: Changing Firm Characteristics or Lower Propensity to Pay?Journal of Financial Economics, 60
-
Botosan Botosan (1997)
Disclosure Level and the Cost of EquityThe Accounting Review, 72
-
Fama Fama, French French (1993)
Common Risk Factors in the Returns on Bonds and StocksJournal of Financial Economics, 33
-
Poterba Poterba (1989)
Tax Reform and the Market for Tax‐Exempt DebtRegional Science and Urban Economics, 19
-
Litzenberger Litzenberger, Ramaswamy Ramaswamy (1982)
The Effects of Dividends on Common Stock Prices: Tax Effects or Information Effects?Journal of Finance, 37
-
Dhaliwal Dhaliwal (1986)
Measurement of Financial Leverage in the Presence of Unfunded Pension ObligationsThe Accounting Review, 61
-
Taggart Taggart (1991)
Consistent Valuation and Cost of Capital Expressions with Corporate and Personal TaxesFinancial Management Autumn
-
Easton Easton (2004)
PE Ratios, PEG Ratios, and Estimating the Implied Expected Rate of Return on Equity CapitalThe Accounting Review, 79
-
Modigliani Modigliani, Miller Miller (1958)
The Cost of Capital, Corporation Finance, and the Theory of InvestmentAmerican Economic Review, 48
-
Miller Miller, Modigliani Modigliani (1961)
Dividend Policy, Growth, and the Valuation of SharesJournal of Business, 34
-
Plesko Plesko (2003)
An Evaluation of Alternative Measures of Corporate Tax RatesJournal of Accounting & Economics, 35
-
Botosan Botosan, Plumlee Plumlee (2005)
Assessing Alternative Proxies for the Expected Risk PremiumThe Accounting Review, 80
-
Miller Miller (1977)
Debt and TaxesJournal of Finance, 32
-
Gebhardt Gebhardt, Lee Lee, Swaminathan Swaminathan (2001)
Toward an Implied Cost of EquityJournal of Accounting Research, 39
-
Graham Graham, Lemmon Lemmon, Schallheim Schallheim (1998)
Debt, Leases, Taxes, and the Endogeneity of Corporate Tax StatusJournal of Finance, 53
-
Shevlin Shevlin (1990)
Estimating Corporate Marginal Tax Rates with Asymmetric Tax Treatment of Gains and LossesThe Journal of the American Taxation Association, 11
-
DeAngelo DeAngelo, Masulis Masulis (1980)
Optimal Capital Structure Under Corporate and Personal TaxationJournal of Financial Economics, 8
-
Graham Graham (1996b)
Proxies for the Corporate Marginal Tax RateJournal of Financial Economics, 42
-
Ayers Ayers, Cloyd Cloyd, Robinson Robinson (2002)
The Effect of Shareholder‐Level Dividend Taxes on Stock Prices: Evidence from the Revenue Reconciliation Act of 1993The Accounting Review, 77
-
Litzenberger Litzenberger, Ramaswamy Ramaswamy (1980)
Dividends, Short Selling Restrictions, Tax‐Induced Investor Clienteles and Market EquilibriumJournal of Finance, 35
-
Shackelford Shackelford, Shevlin Shevlin (2001)
Empirical Tax Research in AccountingJournal of Accounting & Economics, 31
-
Dhaliwal Dhaliwal, Li Li, Trezevant Trezevant (2003)
Is a Dividend Tax Penalty Incorporated into the Return on a Firm's Common Stock?Journal of Accounting & Economics, 35
-
Bowman Bowman (1980)
The Importance of a Market‐Value Measurement of Debt in Assessing LeverageJournal of Accounting Research, 18
-
Francis Francis, LaFond LaFond, Olssen Olssen, Schipper Schipper (2004)
Cost of Equity and Earnings AttributesThe Accounting Review, 79
-
Ohlson Ohlson (1995)
Earnings, Book Value, and Dividends in Security ValuationContemporary Accounting Research, 11
- Publisher
- Wiley
- Copyright
- Copyright © 2006 Wiley Subscription Services, Inc., A Wiley Company
- ISSN
- 0021-8456
- eISSN
- 1475-679X
- DOI
- 10.1111/j.1475-679X.2006.00214.x
- Publisher site
- See Article on Publisher Site
Abstract
ABSTRACT We examine the associations among leverage, corporate and investor level taxes, and the firm's implied cost of equity capital. Expanding on Modigliani and Miller (1958, 1963), the cost of equity capital can be expressed as a function of leverage and corporate and investor level taxes. Based on this expression, we predict that the cost of equity is increasing in leverage, and that corporate taxes mitigate this leverage‐related risk premium, while the personal tax disadvantage of debt increases this premium. We empirically test these predictions using implied cost of equity estimates and proxies for the firm's corporate tax rate and the personal tax disadvantage of debt. Our results suggest that the equity risk premium associated with leverage is decreasing in the corporate tax benefit from debt. We find some evidence that the equity risk premium from leverage is increasing in the personal tax penalty associated with debt.
Journal
Journal of Accounting Research – Wiley
Published: Sep 1, 2006