How big are the tax benefits of debt?
Publication
, Journal Article
Graham, JR
Published in: Journal of Finance
January 1, 2000
I integrate under firm-specific benefit functions to estimate that the capitalized tax benefit of debt equals 9.7 percent of firm value (or as low as 4.3 percent, net of personal taxes). The typical firm could double tax benefits by issuing debt until the marginal tax benefit begins to decline. I infer how aggressively a firm uses debt by observing the shape of its tax benefit function. Paradoxically, large, liquid, profitable firms with low expected distress costs use debt conservatively. Product market factors, growth options, low asset collateral, and planning for future expenditures lead to conservative debt usage. Conservative debt policy is persistent.
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Published In
Journal of Finance
DOI
ISSN
0022-1082
Publication Date
January 1, 2000
Volume
55
Issue
5
Start / End Page
1901 / 1941
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment
Citation
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Graham, J. R. (2000). How big are the tax benefits of debt? Journal of Finance, 55(5), 1901–1941. https://doi.org/10.1111/0022-1082.00277
Graham, J. R. “How big are the tax benefits of debt?” Journal of Finance 55, no. 5 (January 1, 2000): 1901–41. https://doi.org/10.1111/0022-1082.00277.
Graham JR. How big are the tax benefits of debt? Journal of Finance. 2000 Jan 1;55(5):1901–41.
Graham, J. R. “How big are the tax benefits of debt?” Journal of Finance, vol. 55, no. 5, Jan. 2000, pp. 1901–41. Scopus, doi:10.1111/0022-1082.00277.
Graham JR. How big are the tax benefits of debt? Journal of Finance. 2000 Jan 1;55(5):1901–1941.
Published In
Journal of Finance
DOI
ISSN
0022-1082
Publication Date
January 1, 2000
Volume
55
Issue
5
Start / End Page
1901 / 1941
Related Subject Headings
- Finance
- 3801 Applied economics
- 3502 Banking, finance and investment
- 1502 Banking, Finance and Investment