Evidence on tax-motivated securities trading behavior

Article Abstract:

Tax-loss selling by investors in common stocks near the end of calendar years has been proposed as an explanation for the turn-of-the-year effect in stock returns. Past analyses of this hypothesis have relied on inferential data. We provide here some direct data from a compilation of over 80,000 actual common stock investment round trips by a sample of 3000 individual investors. We find strong evidence of a concentration of loss-taking trades late in the year and milder evidence of a concentration just prior to the dates when investments become eligible for long-term tax treatment. (Reprinted by permission of the publisher.)

Investments, Securities, Investors, Securities taxes

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The effect of business risk on corporate capital structure: theory and evidence

Article Abstract:

Under corporate and personal taxation, we demonstrate that the relation between optimal debt level and business risk is roughly U-shaped. This result follows from the fact that the tax liability is an option portfolio that is long in the corporate tax option and short in the personal tax option. Therefore, the net effect of a change in business risk on the optimal debt level depends upon the relative magnitudes of the resultant marginal changes in the values of these two options. Results of empirical tests offer support for the predicted U-shaped relationship. (Reprinted by permission of the publisher.)

Research, Risk (Economics), Business planning, Debt financing (Corporations), Debt financing

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Taxes and the capital structure of partnerships, REITs, and related entities

Article Abstract:

Academic finance has explored the effect of taxes on corporate capital structure in great detail. By contrast, the effect of taxes on the capital structure of partnerships, REITs, and related entities has received little attention. The present paper shows that, under general conditions, the values of partnerships and REITs are invariant to leverage, contradicting the sparse literature in the area. A proof similar to that of Modigliani-Miller is employed. The effect of real world imperfections is also examined. (Reprinted by permission of the publisher.)

Analysis, Tax research, Partnership, Partnerships, Real estate investment trusts

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