Debt and the marginal tax rate

Article Abstract:

High-tax-rate companies issue more debt compared with their low-tax-rate counterparts. This was gleaned from an examination of annual data from more than 10,000 firms for 1980-1982. Findings indicate a positive relationship between the incremental use of debt and simulated firm-specific marginal tax rates that account for net operating losses, investment tax credits and the alternative minimum tax. A substantial variation in marginal tax rates across time and across firms is observed in the tax-code-consistent marginal tax rates calculated.

Analysis, Taxation, Corporations, Debt financing (Corporations), Debt financing

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Negative option values are possible: the impact of Treasury bond futures on the cash U.S. Treasury market

Article Abstract:

The financial instrument created by the US Treasury Department, called Separate Trading of Registered Interest and Principal of Securities, or STRIPS, was used to assess the prices of the put option in the November 2009 to 2014 callable US Treasury bond. Results show that irregular pricing behavior occurred due to the low prices of the callable bond against US Treasury bond futures contracts. Results give credence to the notion that prices in the primary asset market can be significantly affected by derivative assets.

Fiscal Policy, Finance, taxation, & monetary policy, Treasury Department, Prices and rates, Derivatives (Financial instruments), Treasury securities, Treasury market

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Proxies for the corporate marginal tax rate

Article Abstract:

The simulated tax rate is considered as the best available proxy for the 'true' marginal tax rate. Alternatives include the statutory marginal rate or a trichotomous variable, as opposed to commonly used tax variables. The corporate marginal tax rate is a vital input into financial analysis of the cost of capital, financing policy, corporate hedging and corporate reorganizations.

Corporate Tax Rates, Finance, Corporate reorganizations, Tax rates, Direct costing

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