Optimal Investment and Financial Strategies under Tax Rate Uncertainty

In this paper we apply a real-option model to study the effects of tax rate uncertainty on a firm's decisions. In doing so, we depart from the relevant literature, which focuses on fully equity-financed investment project. By letting a representative firm borrow optimally, we show that debt finance not only encourages investment activities but can also substantially mitigate the effect of tax rate uncertainty on investment timing.

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Year of publication:	2010
Authors:	Fedele, Alessandro ; Panteghini, Paolo ; Vergalli, Sergio
Institutions:	CESifo
Subject:	capital levy \| corporate taxation \| default risk \| real options

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Extent:	application/pdf
Series:	CESifo Working Paper Series.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 3017
Classification:	H25 - Business Taxes and Subsidies
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008583631