Ownership, Taxes and Default

Giovanna Nicodano and Luca Regis ()

No 7/2015, Working Papers from IMT School for Advanced Studies Lucca

Abstract: This paper determines ownership and leverage of two units facing a tax-bankruptcy trade-off. Connected units have higher leverage and lower tax burden, because of internal support through both bailouts and corporate dividends. Ownership adjusts to additional tax provisions. A hierarchical group with a wholly-owned subsidiary results from Thin Capitalization rules. The presence of corporate dividend taxes generates horizontal groups, or a Special Purpose Vehicle, or a private equity fund. Combinations of tax provisions contain tax savings, debt and default in connected units. No bailout provisions, such as the Volcker rule, succeed in reducing leverage and default.

Keywords: Ownership structure; Capital structure; Dividend taxes; Thin Capitalization; Groups; Securitization; Private equity (search for similar items in EconPapers)
JEL-codes: G32 H25 H32 L22 (search for similar items in EconPapers)
Pages: 38
Date: 2015-07, Revised 2015-07
New Economics Papers: this item is included in nep-cfn, nep-pbe and nep-pub
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