Taxes and Corporate Finance
This chapter reviews tax research related to domestic and multinational capital structure, debt maturity, payout policy, compensation policy, risk management, earnings management, leasing, pensions, R&D partnerships, tax shelters, transfer pricing, and organizational form. It presents theoretical arguments explaining how taxes can affect corporate decision making and firm value. Following this, it summarizes the related empirical evidence and discusses few unresolved issues. Tax research generally supports the hypothesis that high-tax rate firms pursue policies that provide tax benefits. This approach seeks to highlight important questions about how taxes affect corporate decisions, and to summarize and, in some cases, critique the answers that have been thus far provided. Many issues remain unresolved, however, including understanding whether tax effects are of first-order importance, why firms do not pursue tax benefits more aggressively, and whether investor-level taxes affect corporate actions. Overall, substantial progress has been made in the investigation of whether and how taxes affect corporate financial decisions, but much work remains to be done. © 2007 Elsevier B.V. All rights reserved.
