Tax Clienteles and Optimal Capital Structure under Uncertainty

Josef Zechner

The Journal of Business, 1990, vol. 63, issue 4, 465-91

Abstract: This article demonstrates that investors' heterogeneous tax status implies that they value bonds differently at the margin. Due to asymmetric personal taxes, high-risk bonds generate a higher amount of taxable income than low-risk bonds and are, therefore, held by investors in low tax brackets. In such a setting, firms can increase their value by choosing a capital structure that attracts a particular bondholder clientele. The author analyzes how bondholder clienteles change as the uncertainty about a bond's final payoff is resolved over time and shows how tax-clientele effects influence firms' capital structure decisions. Copyright 1990 by the University of Chicago.

Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:63:y:1990:i:4:p:465-91

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