Firm Financing in Chile After the 2014-2015 Tax Reform: Debt of Equity?
Leonardo Hernández T. ()
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Leonardo Hernández T.: The World Bank
Revista de Analisis Economico – Economic Analysis Review, 2016, vol. 31, issue 2, 65-100
Abstract:
This paper analyzes the effects of the 2014-2015 Chilean tax reform on firms' valuation and incentives to retain earnings and finance their operations with equity versus debt. By analyzing the effects of the reform on total taxes paid and cash flows received by investors, the paper concludes that in general the reform reduces the value of firms and lessens the incentives to retain earnings. Also, simulations show that the majority of firms would choose the accrual or "attributed" tax based system. However, if the latter is not permitted firms will choose debt over equity. The cash-based or semi-integrated system becomes the preferred option only when tax avoidance is possible.
Keywords: Corporate tax; income tax; payout ratio; tax avoidance; firm financing (search for similar items in EconPapers)
JEL-codes: D92 G32 G35 H24 H26 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ila:anaeco:v:31:y:2016:i:2:p:65-100
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