The effects on investment incentives of an allowance for corporate equity tax system: the Belgian case as an example
| Autor: | Konrad Richter, Martin Baumann, Carmen Bachmann |
|---|---|
| Rok vydání: | 2017 |
| Předmět: |
050208 finance
media_common.quotation_subject 05 social sciences Equity (finance) Monetary economics General Business Management and Accounting Corporate finance Incentive Return on equity Investment incentives Accounting Debt 0502 economics and business Hurdle rate Economics Total capital 050207 economics Finance media_common |
| Zdroj: | Review of Quantitative Finance and Accounting. 51:943-965 |
| ISSN: | 1573-7179 0924-865X |
| DOI: | 10.1007/s11156-017-0693-2 |
| Popis: | In the past years, allowance for corporate equity (ACE) tax systems have become more popular even though they are still quite rare. An ACE tends to make a tax system neutral in respect of whether a company is financed by debt or equity. Less attention is given to the effects on investment incentives by scientific literature. We construct a model based on the principle of a hurdle rate to show whether and how an ACE system could change a company’s decision between distribution and reinvestment. The analysis is extended by implementing the so called fairness tax. We find that the influence of the fairness tax on (re)investment incentives depends on the debt to total capital ratio and the return on equity. Hence, the introduction of an ACE does only in certain cases lead to a change from distribution to reinvestment. Interestingly, the fairness tax can increase the incentive to reinvest in few situations and can make the ACE system more attractive in respect of reinvestment. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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