Access the full text.
Sign up today, get DeepDyve free for 14 days.
Maria Vassalou, Yuhang Xing (2004)
Default Risk in Equity ReturnsDerivatives
Mark Mitchell, Todd Pulvino, Erik Stafford (2002)
Price Pressure Around MergersCapital Markets: Asset Pricing & Valuation
The Journal of Finance, 63
Journal of Financial Economics, 103
Journal of Corporate Finance, 20
(2007)
Private credit in 129 countries
Craig Furfine, R. Rosen (2009)
Mergers Increase Default RiskERN: Firm Behavior (Topic)
V. Acharya, Y. Amihud, Lubomir Litov (2008)
Creditor Rights and Corporate Risk-TakingCorporate Finance: Capital Structure & Payout Policies
Kose John, Lubomir Litov, Bernard Yeung (2007)
Corporate Governance and Risk TakingFEN: Behavioral Finance (Topic)
Journal of Financial and Quantitative Economics, 35
E. Fama (2010)
My Life in FinanceCorporate Finance: Capital Structure & Payout Policies eJournal
Florian Heider, Alexander Ljungqvist (2014)
As Certain as Debt and Taxes: Estimating the Tax Sensitivity of Leverage from State Tax ChangesNYU: Finance Working Papers (Topic)
(2009)
Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches
Annual Review of Financial Economics, 3
P. Brockman, Emre Unlu (2009)
Dividend policy, creditor rights, and the agency costs of debt.Journal of Financial Economics, 92
Douglas Diamond (1989)
Reputation Acquisition in Debt MarketsJournal of Political Economy, 97
A. Thakor, A. Goel (2008)
Do Envious CEOs Cause Merger Waves?Behavioral & Experimental Finance
F. Black, Myron Scholes (1973)
The Pricing of Options and Corporate LiabilitiesJournal of Political Economy, 81
Michael Jensen, W. Meckling (1976)
Theory of the Firm
The Journal of Finance, 59
Seong-Soon Cho, Sadok Ghoul, O. Guedhami, Jungwon Suh (2013)
Creditor Rights and Capital Structure: Evidence from International DataCorporate Finance: Capital Structure & Payout Policies eJournal
Journal of Financial Economics, 91
M. Faccio, Jin Xu (2013)
Taxes and Capital StructureJournal of Financial and Quantitative Analysis, 50
Rafael Porta, Florencio López‐de‐Silanes, Andrei Shleifer, Robert Vishny (1996)
Law and FinanceJournal of Political Economy, 106
Andrew Ang, R. Hodrick, Yuhang Xing, Xiaoyan Zhang (2008)
High Idiosyncratic Volatility and Low Returns: International and Further U.S. EvidenceCapital Markets: Market Efficiency
G. Alexandridis, Kathleen Fuller, L. Terhaar, N. Travlos (2012)
Deal Size, Acquisition Premia and Shareholder GainsOrganizations & Markets: Formal & Informal Structures eJournal
Journal of Corporate Finance, 17
Journal of Finance, 29
B. Eckbo, Karin Thorburn (1999)
Gains to Bidder Firms Revisited: Domestic and Foreign Acquisitions in CanadaJournal of Financial and Quantitative Analysis, 35
Bruno Monteiro (2013)
Determinants of Cross-Border Mergers and Acquisitions
M. Faccio, Ronald Masulis (2005)
The Choice of Payment Method in European Mergers and AcquisitionsJournal of Finance, 60
Assaf Eisdorfer (2008)
Empirical Evidence of Risk Shifting in Financially Distressed FirmsJournal of Finance, 63
Journal of Financial Economics, 3
Craig Doidge, I. Dyck (2013)
Taxes and Corporate Policies: Evidence From a Quasi Natural ExperimentCanadian Law eJournal
Özde Öztekin, M. Flannery (2008)
Institutional Determinants of Capital Structure Adjustment SpeedsInternational Corporate Finance eJournal
Alexander Ljungqvist, Liandong Zhang, Luo Zuo (2015)
Sharing Risk with the Government: How Taxes Affect Corporate Risk TakingWharton Research Data Services (WRDS) Research Paper Series
Douglas Diamond (1991)
Monitoring and Reputation: The Choice between Bank Loans and Directly Placed DebtJournal of Political Economy, 99
Sara Moeller, Frederik Schlingemann, René Stulz (2004)
Firm size and the gains from acquisitionsJournal of Financial Economics, 73
Dominika Langenmayr, Rebecca Lester (2017)
Taxation and Corporate Risk-TakingERN: Microeconometric Models of Firms' Investment Behavior (Topic)
Journal of Financial Economics, 102
Craig Doidge, Alexander Dyck (2015)
Taxes and Corporate Policies: Evidence from a Quasi Natural Experiment: Taxes and Corporate PoliciesJournal of Finance, 70
The Journal of Finance, 59
R. Merton (1974)
On the Pricing of Corporate Debt: The Risk Structure of Interest RatesWorld Scientific Reference on Contingent Claims Analysis in Corporate Finance
Journal of Accounting Research, 55
This study aims to examine how corporate taxes affect corporate risk-taking decisions.Design/methodology/approachThis study examines corporate risk-taking by analyzing how a firm’s asset risk changes following an acquisition carried out by publicly listed companies in the G7 nations. To measure the asset risk of a firm, this study uses the option pricing framework in Merton (1974).FindingsConsistent with an implication of the Merton (1974) framework, the findings show that firms take more risk in their investment decisions when tax rates are high. Moreover, the tax effects wane for firms with a relatively large borrowing opportunity and this suggests that the risk-taking incentive from taxes is moderated by the reputation concern in the debt market, lending support to the Diamond (1989) reputation-building model. The empirical results also show that the tax-induced risk-taking incentive is restrained by creditor rights. Overall, the study reveals an important role of taxes in the structure of corporate investment decisions.Practical implicationsThe implications of this study can be beneficial to policymakers when considering the alteration of tax rates, as it will affect the riskiness of firm investment decisions.Originality/valueThis study provides a better understanding of the role of taxes on risk-taking and also contributes to the growing body of evidence supporting tax effects of risk-taking. The relationship between taxes and risk-taking has proven that the corporate taxation is one of the key factors that firms consider during their selection of risky investments. Unlike previous studies, this research is the first to investigate the change in asset risk, estimating by the option pricing framework, through studying a particular event: mergers and acquisitions.
The Journal of Risk Finance – Emerald Publishing
Published: Aug 10, 2018
Keywords: Acquisitions; Risk-taking; Corporate taxation; G32; G34; H25
Read and print from thousands of top scholarly journals.
Already have an account? Log in
Bookmark this article. You can see your Bookmarks on your DeepDyve Library.
To save an article, log in first, or sign up for a DeepDyve account if you don’t already have one.
Copy and paste the desired citation format or use the link below to download a file formatted for EndNote
Access the full text.
Sign up today, get DeepDyve free for 14 days.
All DeepDyve websites use cookies to improve your online experience. They were placed on your computer when you launched this website. You can change your cookie settings through your browser.