Accelerated Depreciation, Default Risk and Investment Decisions

Paolo Panteghini and Sergio Vergalli

No 2016.14, Working Papers from Fondazione Eni Enrico Mattei

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: Capital Structure; Contingent Claims; Corporate Taxation and Hybrid Securities (search for similar items in EconPapers)
JEL-codes: H2 (search for similar items in EconPapers)
Date: 2016-03
New Economics Papers: this item is included in nep-acc and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://feem-media.s3.eu-central-1.amazonaws.com/w ... oads/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)
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:fem:femwpa:2016.14

Access Statistics for this paper

More papers in Working Papers from Fondazione Eni Enrico Mattei Contact information at EDIRC.
Bibliographic data for series maintained by Alberto Prina Cerai (alberto.prinacerai@feem.it this e-mail address is bad, please contact repec@repec.org).