The Effect on a Firm's Financing and Investment Decisions of Differential Taxation as Barriers to International Investment

The Effect on a Firm's Financing and Investment Decisions of Differential Taxation as Barriers to... The effect of barriers to international investment (in the form of differential taxation) upon a firm's investment and financing decision is analyzed through a newly derived international capital asset pricing model. A firm using an improper project selection criterion which fails to account for the effect of barriers to international investment may reject a desirable project with high systematic risk, whereas it may incorrectly accept an undesirable project with low systematic risk. The financial risk premium under barriers is greater than that in the absence of barriers to international investment. In addition, the lower is the degree of barriers to international investment, the more domestic securities will gain, even when both countries impose a tax on investors of different nationality. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

The Effect on a Firm's Financing and Investment Decisions of Differential Taxation as Barriers to International Investment

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Publisher
Springer Journals
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008227003406
Publisher site
See Article on Publisher Site

Abstract

The effect of barriers to international investment (in the form of differential taxation) upon a firm's investment and financing decision is analyzed through a newly derived international capital asset pricing model. A firm using an improper project selection criterion which fails to account for the effect of barriers to international investment may reject a desirable project with high systematic risk, whereas it may incorrectly accept an undesirable project with low systematic risk. The financial risk premium under barriers is greater than that in the absence of barriers to international investment. In addition, the lower is the degree of barriers to international investment, the more domestic securities will gain, even when both countries impose a tax on investors of different nationality.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Sep 29, 2004

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