Does the debt tax shield distort ownership efficiency?
(2018) In International Review of Economics and Finance 54. p.299-310- Abstract
The tax laws of most developed countries are debt biased since firms can deduct interest on debt but not on equity. This bias is known to distort investment decisions. However, less is known about how the debt tax shield affects the ownership of assets when bidders differ financial expertise and thus in optimal use of leverage. We show that the debt tax shield need not always distort ownership efficiency. Assets end up with the socially preferred owner when differences in financial and productive expertise between bidders is small and better financial expertise reduces expected bankruptcy costs.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/4c2f88da-387e-4265-a168-7c2dd2aee863
- author
- Norbäck, Pehr Johan ; Persson, Lars LU and Tåg, Joacim LU
- publishing date
- 2018-03-01
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- Acquisitions, Capital gains tax, Corporate tax, LBOs, M&As, Ownership, Private equity, Tax shields, D20, G32, G33, G34, H25, H32, L19, L22
- in
- International Review of Economics and Finance
- volume
- 54
- pages
- 12 pages
- publisher
- Elsevier
- external identifiers
-
- scopus:85033408020
- ISSN
- 1059-0560
- DOI
- 10.1016/j.iref.2017.09.012
- language
- English
- LU publication?
- no
- id
- 4c2f88da-387e-4265-a168-7c2dd2aee863
- date added to LUP
- 2020-01-23 15:53:28
- date last changed
- 2022-06-14 01:58:30
@article{4c2f88da-387e-4265-a168-7c2dd2aee863, abstract = {{<p>The tax laws of most developed countries are debt biased since firms can deduct interest on debt but not on equity. This bias is known to distort investment decisions. However, less is known about how the debt tax shield affects the ownership of assets when bidders differ financial expertise and thus in optimal use of leverage. We show that the debt tax shield need not always distort ownership efficiency. Assets end up with the socially preferred owner when differences in financial and productive expertise between bidders is small and better financial expertise reduces expected bankruptcy costs.</p>}}, author = {{Norbäck, Pehr Johan and Persson, Lars and Tåg, Joacim}}, issn = {{1059-0560}}, keywords = {{Acquisitions; Capital gains tax; Corporate tax; LBOs; M&As; Ownership; Private equity; Tax shields; D20; G32; G33; G34; H25; H32; L19; L22}}, language = {{eng}}, month = {{03}}, pages = {{299--310}}, publisher = {{Elsevier}}, series = {{International Review of Economics and Finance}}, title = {{Does the debt tax shield distort ownership efficiency?}}, url = {{http://dx.doi.org/10.1016/j.iref.2017.09.012}}, doi = {{10.1016/j.iref.2017.09.012}}, volume = {{54}}, year = {{2018}}, }