On the relevance of debt maturity structure

Article Abstract:

A tax-induced framework is presented for analysis of debt maturity problems, with it shown that under some modifications of the current U.S. tax code, debt maturity is irrelevant even when taxes and bankruptcy costs yielding an optimal capital structure are present. As long as the Miller equilibrium is not prevalent and the restrictive structure is relaxed, tax reasons would normally imply the presence of an optimal debt maturity structure, and if a gain from leverage exists, an increasing term structure of interest rates, adjusted for default risk, leads to long-term debt being optimal. Under similar circumstances, a decreasing term structure leads to short-term debt being optimal, and in the absence of agency costs, a Miller-equilibrium-type result arises at equilibrium and the result is irrelevant. It is also argued that agency costs can reverse the irrelevance and lead to a firm-specific optimal debt maturity structure.

Models, Economic aspects, Debt

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Marginal tax rates: evidence from nontaxable corporate bonds: a note

Article Abstract:

An alternative method of calculating marginal personal tax rates through pairing non-taxable (such as industrial development and pollution control) and taxable corporate bonds is presented, with it shown that comparable matched bond pairs are produced by the method. The 200 bond pairs from the second quarter of 1973 through the second quarter of 1983 that meet the specified criteria (listed) are examined. The marginal personal tax rate is shown to be less than the corporate statutory tax rate by testing of the marginal tax rate relationships.

Methods, Analysis, Securities taxes

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Real rates, expected inflation, and inflation risk premia

Article Abstract:

This paper studies the term structure of real rates, expected inflation, and inflation risk premia. The analysis is based on new estimates of the real term structure derived from the prices of index-linked and nominal debt in the U.K. I find strong evidence to reject both the Fisher Hypothesis and version of the Expectations Hypothesis for real rates. The estimates also imply the presence of time-varying inflation risk premia throughout the term structure. (Reprinted by permission of the publisher.)

United Kingdom, Risk (Economics), Inflation (Finance), Inflation (Economics)

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