The Effects of Taxation on Corporate Investment and Financial Policy
The effects of taxation on a firm's investment decisions have long been debated. This study investigates several approaches to the analysis of this subject. One area of focus is the analysis of investment policy in the presence of a legal constraint on financial policy. It has been argued previously that one such constraint necessarily complicates a firm's investment policy decisions. This study shows that the complication arises only from the way in which the constraint is written. In fact, investment policy will be not affected by taxation when this legal constraint is carefully specified. Also analyzed is a legal constraint on share repurchase and the effect of taxing capital gains at realization on investment policy. In addition, the effects of taxation on a firm's financial policy are studied.
University of Illinois - Urbana-Champaign
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University of Illinois at Urbana-Champaign