Corporate taxes, leasing, and debt. Kyle S Wells

ISBN: 9780549500629

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NOOKstudy eTextbook

155 pages


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Corporate taxes, leasing, and debt.  by  Kyle S Wells

Corporate taxes, leasing, and debt. by Kyle S Wells
| NOOKstudy eTextbook | PDF, EPUB, FB2, DjVu, audiobook, mp3, RTF | 155 pages | ISBN: 9780549500629 | 5.14 Mb

In a series of three chapters, I add to a line of literature termed the underleverage puzzle. In the first chapter, I propose a new and simple proxy for nondebt tax shields called the tax spread: the difference between tax expense and taxes paid. IMoreIn a series of three chapters, I add to a line of literature termed the underleverage puzzle. In the first chapter, I propose a new and simple proxy for nondebt tax shields called the tax spread: the difference between tax expense and taxes paid. I find statistically significant determinants of the tax spread using accounting proxies for tax-shielding activities.

I also compare the tax spread with a measure of underleverage termed kink and find a significant and positive relation between kink and the tax spread, inferring that firms are finding alternatives to debt so as to reduce taxable income. This tax spread measure is also a statistically significant replacement for previous proxies of nondebt tax shields in extant empirical capital structure models and provides results consistent with capital structure theory.-In the second and third chapters, I use a hand-collected dataset of sale-and-leaseback transactions. I find systematic differences among firms using sale-and-leaseback transactions as compared with industry averages.

I also find evidence supporting the primary theoretical reason for leasing, namely, taxes and mixed support for asymmetric information and bankruptcy costs relating to leasing. Contrary to theory, I find that these firms are typically large and solvent with high growth potential but have low interest coverage and high leverage, suggesting that the need for cash in tandem with capital constraints are driving these transactions. I also find that abnormal market returns are positively correlated with growth potential and negatively correlated with debt structure, suggesting that the market perceives sale-and-leaseback funds likely to be used for growth as value enhancing while firms likely to use funds to meet debt obligation experience lower event returns.-In the third chapter, I use the sale-and-leaseback transactions as a special case of leasing to test theories relating leasing to debt.

After controlling for other exogenous determinants of incremental debt policy, I find that firms that have high levels of nondebt tax shields tend to increase debt levels after executing a sale-and-leaseback transaction, suggesting a complementary affect.

However, in robustness checks, I cannot reject the substitution hypothesis.



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