Skip to main content
Journal cover image

Tax incentives to hedge

Publication ,  Journal Article
Graham, JR; Smith, CW
Published in: Journal of Finance
January 1, 1999

For corporations facing tax-function convexity, hedging lowers expected tax liabilities, thereby providing an incentive to hedge. We use simulation methods to investigate convexity induced by tax-code provisions. On average, the tax function is convex (although in approximately 25 percent of cases it is concave). Carrybacks and carryforwards increase the range of income with incentives to hedge; other tax-code provisions have minor impacts. Among firms facing convex tax functions, average tax savings from a five percent reduction in the volatility of taxable income are about 5.4 percent of expected tax liabilities; in extreme cases, these savings exceed 40 percent.

Duke Scholars

Altmetric Attention Stats
Dimensions Citation Stats

Published In

Journal of Finance

DOI

ISSN

0022-1082

Publication Date

January 1, 1999

Volume

54

Issue

6

Start / End Page

2241 / 2262

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
 

Citation

APA
Chicago
ICMJE
MLA
NLM
Graham, J. R., & Smith, C. W. (1999). Tax incentives to hedge. Journal of Finance, 54(6), 2241–2262. https://doi.org/10.1111/0022-1082.00187
Graham, J. R., and C. W. Smith. “Tax incentives to hedge.” Journal of Finance 54, no. 6 (January 1, 1999): 2241–62. https://doi.org/10.1111/0022-1082.00187.
Graham JR, Smith CW. Tax incentives to hedge. Journal of Finance. 1999 Jan 1;54(6):2241–62.
Graham, J. R., and C. W. Smith. “Tax incentives to hedge.” Journal of Finance, vol. 54, no. 6, Jan. 1999, pp. 2241–62. Scopus, doi:10.1111/0022-1082.00187.
Graham JR, Smith CW. Tax incentives to hedge. Journal of Finance. 1999 Jan 1;54(6):2241–2262.
Journal cover image

Published In

Journal of Finance

DOI

ISSN

0022-1082

Publication Date

January 1, 1999

Volume

54

Issue

6

Start / End Page

2241 / 2262

Related Subject Headings

  • Finance
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment