TAX ASYMMETRIES AND CAPITAL STRUCTURE CHOICES IN CLOSELY HELD FIRMS

This paper presents a tax-based model of an entrepreneurial firm's capital structure choice problem, exposing the relevance of non-transferable tax deductions, "at risk" loss limitation, and related asymmetries in entrepreneurs' and investors' ability to exploit tax shields. While naive application of tax-based corporate capital structure theories implies all-equity financing of a closely-held enterprise, this analysis finds circumstances under which debt financing can be optimal.


Issue Date:
1988-04
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/225810
Total Pages:
42
Series Statement:
87-7




 Record created 2017-04-01, last modified 2017-08-28

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