Valuation of tax loss carryforwards

Valuation of tax loss carryforwards Tax loss carryforwards (TLC) are a valuable asset because they can potentially reduce a company’s future tax payments. However, there is often a great deal of uncertainty regarding the probability and timing of these tax savings. We propose a contingent-claim model to value this asset. The value is determined primarily by the size of accumulated carryforwards relative to earnings. We show that, for poorly performing firms with large TLC, (1) the realizable (or fair) value of the tax losses can be significantly smaller than the book value, and (2) the tax losses can account for a significant fraction of the company’s equity value. The model is illustrated by calibrating it to a couple of companies with large carryforwards. Finally, we show how the model can be used to compute the marginal tax rate of a company with carryforwards. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Valuation of tax loss carryforwards

Loading next page...
 
/lp/springer_journal/valuation-of-tax-loss-carryforwards-TWljVsysG4
Publisher
Springer US
Copyright
Copyright © 2013 by Springer Science+Business Media New York
Subject
Economics / Management Science; Finance/Investment/Banking; Accounting/Auditing; Econometrics; Operations Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1007/s11156-013-0393-5
Publisher site
See Article on Publisher Site

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 12 million articles from more than
10,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Unlimited reading

Read as many articles as you need. Full articles with original layout, charts and figures. Read online, from anywhere.

Stay up to date

Keep up with your field with Personalized Recommendations and Follow Journals to get automatic updates.

Organize your research

It’s easy to organize your research with our built-in tools.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

Monthly Plan

  • Read unlimited articles
  • Personalized recommendations
  • No expiration
  • Print 20 pages per month
  • 20% off on PDF purchases
  • Organize your research
  • Get updates on your journals and topic searches

$49/month

Start Free Trial

14-day Free Trial

Best Deal — 39% off

Annual Plan

  • All the features of the Professional Plan, but for 39% off!
  • Billed annually
  • No expiration
  • For the normal price of 10 articles elsewhere, you get one full year of unlimited access to articles.

$588

$360/year

billed annually
Start Free Trial

14-day Free Trial