Essays on taxation and capital markets
This dissertation consists of two essays. The first essay develops the argument that the increased reliance of US firms on debt finance since the mid 1980's can be explained by changing tax incentives due to tax reforms in 1981 and 1986 as well as the rapid increase in the amount of assets held in tax-preferred pension funds. Using cross-sectional data on household portfolios from the 1983 and 1989 Surveys of Consumer Finance, this paper estimates a model of household equity demand that takes into account taxation of income from capital. The results of this estimation exercise imply that the firm valuation response (change in firm value from an increase in firm debt issues, the proceeds of which are returned directly to shareholders) increased from. 18 in 1982 to.26 in 1988. The second essay, coauthored with Albert Ando and Gary Sawchuk, attempts to measure the cost of capital in the U.S., Japan, and Canada using both the accounting records of individual companies and aggregate National Accounts data, supplemented by the market information on the price of equity shares. No significant evidence is found for a differential in the cost of capital between the U.S., Japan, and Canada. However, for Japan, we conclude that current prices of equities are probably not sustainable unless a moderate, but persistent, rise in the real price of land is resumed.
|Year of publication:||
|Authors:||Hancock, John Douglas|
|Type of publication:||Other|
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