Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Department of Economics, University of Oslo Memorandum

No 12/2009:
Marginal versus Average Beta of Equity under Corporate Taxation

Diderik Lund ()

Abstract: Even for fully equity-financed firms there may be substantial effects of taxation on the after-tax cost of capital. Among the few studies of these effects, even fewer identify all effects correctly. When marginal investment is taxed together with inframarginal, marginal beta differs from average if there are investmentrelated deductions like depreciation. To calculate asset betas, one should not only "unlever" observed equity betas, but "untax" and "unaverage" them. Risky tax claims are valued as call options, with closed-form solutions for the exercise probability. Results have practical relevance for multinationals operating under different tax systems.

Keywords: Cost of capital; WACC; loss offset; tax shields; options; (follow links to similar papers)

JEL-Codes: F23; G31; H25; (follow links to similar papers)

56 pages, June 9, 2009

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

Memo-12-2009.pdf    PDF-file
Download Statistics
This paper is published as:
Lund, Diderik, (2014), 'How taxes on firms reduce the risk of after-tax cash flows', FinanzArchiv/Public Finance Analysis, Vol. 70, No. 4, pages 567-598

Questions (including download problems) about the papers in this series should be directed to Magnus Gabriel Aase ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:osloec:2009_012 This page was generated on 2016-01-06 15:32:30