Investment distortions and the value of the government's tax claim

Daniel Kreutzmann, Soenke Sievers and Christian Mueller

Applied Financial Economics, 2013, vol. 23, issue 11, 977-989

Abstract: This article integrates the government in the context of company valuation. Our framework allows to analyse and to quantify the risk-sharing effects and conflicts of interest between the government and the shareholders when firms follow different financial policies. We provide novel evidence that firms with fixed future levels of debt might invest more than socially desirable. Economically, this happens if the gain in tax shields is big enough to outweigh the loss in the unlevered firm value. Our findings have implications for the practice of investment subsidy programmes provided by the government to avoid fostering investments beyond the socially optimal level.

Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/09603107.2013.786161 (text/html)
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:taf:apfiec:v:23:y:2013:i:11:p:977-989

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603107.2013.786161

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().