Taxation, Portfolio Choice, and Debt-Equity Ratios: A General Equilibrium Model / Alan J. Auerbach, Mervyn A. King.

Format:

Book

Author/Creator:

Auerbach, Alan J.

Contributor:

National Bureau of Economic Research.

King, Mervyn A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0546.

NBER working paper series no. w0546

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Taxation, Portfolio Choice, and Debt-Equity Ratios

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1980.

Summary:

This paper explores the portfolio behavior of investors differing with respect to both tax rates and risk-aversion, emphasizing the role of constraints on individual and firm behavior in ensuring the existence of and characterizing portfolio equilibrium. Under certain conditions on the securities available in the market, which also are required for shareholders to be unanimous in supporting firm value maximization, investors will be segmented by tax rate into two groups, one specialized in equity and the other in debt. Though the relative wealths of the two groups determines the aggregate debt-equity ratio, each firm will be indifferent to its financial policy.

Notes:

Print version record

August 1980.