Taxes, leverage, and the cost of equity capital

• 成果类型: Article
• 署名作者: Dhaliwal, Dan; Heitzman, Shane; Li, Oliver Zhen
• 署名单位: University of Arizona; University of Auckland; University of Rochester; University of Notre Dame
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/j.1475-679X.2006.00214.x
• 发表日期: 2006
• 页码: 691-723
• 关键词: disclosure level; personal taxes; stock-prices; gains taxes; corporate; Dividends; MARKET; debt; valuation; proxies

摘要

We examine the associations among leverage, corporate and investor level taxes, and the firm's implied cost of equity capital. Expanding on Modigliani and Miller [ 1958, 1963], the cost of equity capital can be expressed as a function of leverage and corporate and investor level taxes. Based on this expression, we predict that the cost of equity is increasing in leverage, and that corporate taxes mitigate this leverage-related risk premium, while the personal tax disadvantage of debt increases this premium. We empirically test these predictions using implied cost of equity estimates and proxies for the firm's corporate tax rate and the personal tax disadvantage of debt. Our results suggest that the equity risk premium associated with leverage is decreasing in the corporate tax benefit from debt. We find some evidence that the equity risk premium from leverage is increasing in the personal tax penalty associated with debt.