TAX ASYMMETRIES AND CAPITAL STRUCTURE CHOICES IN CLOSELY HELD FIRMS

Robert Innes ()

No 225810, Working Papers from University of California, Davis, Department of Agricultural and Resource Economics

Abstract: This paper presents a tax-based model of an entrepreneurial firm's capital structure choice problem, exposing the relevance of non-transferable tax deductions, "at risk" loss limitation, and related asymmetries in entrepreneurs' and investors' ability to exploit tax shields. While naive application of tax-based corporate capital structure theories implies all-equity financing of a closely-held enterprise, this analysis finds circumstances under which debt financing can be optimal.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 42
Date: 1988-04
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Persistent link: https://EconPapers.repec.org/RePEc:ags:ucdavw:225810

DOI: 10.22004/ag.econ.225810

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