Optimal Investment and Financial Strategies under Tax-Rate Uncertainty

Alessandro Fedele, Sergio Vergalli and Paolo Panteghini

German Economic Review, 2011, vol. 12, issue 4, 438-468

Abstract: In this paper, we apply a real-option model to study the effects of tax-rate uncertainty on a firm’s decision. In doing so, we depart from the relevant literature, which focuses on fully equity-financed investment projects. By letting a representative firm borrow optimally, we show that debt finance not only encourages investment activities but can also substantially mitigate the effect of tax-rate uncertainty on investment timing.

Keywords: Capital levy; corporate taxation; default risk; real options (search for similar items in EconPapers)
Date: 2011
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Journal Article: Optimal Investment and Financial Strategies under Tax‐Rate Uncertainty (2011)
Working Paper: Optimal Investment and Financial Strategies under Tax Rate Uncertainty (2010)
Working Paper: Optimal Investment and Financial Strategies under Tax Rate Uncertainty (2010)
Working Paper: Optimal Investment and Financial Strategies under Tax Rate Uncertainty (2010)
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DOI: 10.1111/j.1468-0475.2010.00529.x

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