Personal taxes, shareholder valuation of riskless corporate taxable cash flows, and management investment decisions
Joseph K. Winsen
International Journal of Managerial Finance, 2005, vol. 1, issue 2, 123-136
Abstract:
Purpose - To analyse the net present value (NPV) rule for corporate investments incorporating shareholder personal taxes, under the classical system of taxing corporate profits. Design/methodology/approach - The after‐tax payoffs to shareholders are calculated, comparing immediate distribution as dividends of corporate funds available for investment with future after‐tax dividend distributions if corporate funds are invested. Findings - Shareholders will disagree on the optimal corporate NPV rule. If, as in widely held public companies, corporate management are unaware of the marginal personal tax rate of shareholders, then the only rule which will accept investment projects that no shareholder would want the company to reject, is the rule which discounts after‐corporate‐tax cash flows at a before‐tax discount rate. Research limitations/implications - The analysis is based on the classical system of taxing corporate profits. A number of countries have adopted an integrated system of corporate taxation. The analysis may or may not extend to such alternative systems. Practical implications - Simplifies the choice of NPV rules for corporate management, under a classical tax system. Originality/value - The widely held view that after‐corporate‐tax discount rates should be used in discounting after‐corporate‐tax cash flows is shown to be inadequate.
Keywords: Shareholders; Taxes; Corporate investments (search for similar items in EconPapers)
Date: 2005
References: Add references at CitEc
Citations:
Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eme:ijmfpp:17439130510600839
DOI: 10.1108/17439130510600839
Access Statistics for this article
International Journal of Managerial Finance is currently edited by Dr Alfred Yawson
More articles in International Journal of Managerial Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().