Accelerated Depreciation, Default Risk and Investment Decisions

Paolo Panteghini and Sergio Vergalli

No 232220, ETA: Economic Theory and Applications from Fondazione Eni Enrico Mattei (FEEM)

Abstract: In this article we focus on a representative firm that can decide when to invest under default risk. On the one hand, this firm can benefit from generous tax depreciation allowances, on the other hand it faces a default risk. Our aim is to study the effects of tax depreciation allowances in a risky environment. As will be shown in our numerical analysis, generous tax depreciation allowances lead to a decrease in a firm’s leverage and, in most cases, cause a reduction in default risk. This result has a strong policy implication, in that it shows that an investment stimulus pack is expected neither to increase the default risk nor to cause financial instability.

Keywords: Risk; and; Uncertainty (search for similar items in EconPapers)
Pages: 24
Date: 2016-03-01
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Citations: View citations in EconPapers (10)

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https://ageconsearch.umn.edu/record/232220/files/NDL2016-014.pdf (application/pdf)

Related works:
Journal Article: Accelerated depreciation, default risk and investment decisions (2016)
Working Paper: Accelerated Depreciation, Default Risk and Investment Decisions (2016)
Working Paper: Accelerated Depreciation, Default Risk and Investment Decisions (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemth:232220

DOI: 10.22004/ag.econ.232220

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