Taxes, Firm Financial Policy and the Cost of Capital: An Empirical Analysis / Alan J. Auerbach.

Format:

Book

Author/Creator:

Auerbach, Alan J.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0955.

NBER working paper series no. w0955

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Taxes, Firm Financial Policy and the Cost of Capital

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1982.

Summary:

This paper develops a theoretical model of firm behavior consistent with the maximization of shareholder utility, and derives empirically testable implications of different theories of equity finance. Using data on firm earnings and previous investment and financial behavior, we assess whether firms treat new share issues as a more expensive source of finance than retentions, and whether such behavior varies across firms according to the composition of their shareholders. Our results strongly support the hypothesis that firms perceive a higher cost of capital when issuing new shares, and that the cost of capital varies significantly across firms having different estimated tax clienteles, as theory would predict.

Notes:

Print version record

August 1982.