Effects of corporate tax rate cuts on firms' investment and valuation: A microsimulation approach

Keiichi Kubota, Hitoshi Takehara

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

This paper investigates changes in firm values triggered by a hypothetical corporate tax rate cut for Japan. We use multiplicative production functions and firms' investment decision changes over time via the accumulated process of retained earnings on the simulated path. We find changes in corporate tax rates can enhance the market value of firm equity in most cases, while there are some cases in which the effects are neutral or even detrimental for firm value. We interpret that these mixed results are caused by joint effects of current provisions of tax loss carry-forward and the net balance of tax deferred accounts. We find that past profitability and variability of each firm is crucial to hit exact threshold points at which firms experience value appreciations or not. The results possess important implications to both regulators and corporate financial managers.

Original languageEnglish
Title of host publicationAdvances in Intelligent Systems and Computing
PublisherSpringer Verlag
Pages155-165
Number of pages11
Volume229 AISC
ISBN (Print)9783642398285
DOIs
Publication statusPublished - 2014
Event9th Conference of the European Social Simulation Association, ESSA 2013 - Warsaw
Duration: 2013 Sep 162013 Sep 20

Publication series

NameAdvances in Intelligent Systems and Computing
Volume229 AISC
ISSN (Print)21945357

Other

Other9th Conference of the European Social Simulation Association, ESSA 2013
CityWarsaw
Period13/9/1613/9/20

Fingerprint

Taxation
Profitability
Managers

Keywords

  • Corporate taxation
  • Deferred tax assets and liabilities
  • Earnings variability
  • Retained earnings
  • Tax loss carry-forward

ASJC Scopus subject areas

  • Computer Science(all)
  • Control and Systems Engineering

Cite this

Kubota, K., & Takehara, H. (2014). Effects of corporate tax rate cuts on firms' investment and valuation: A microsimulation approach. In Advances in Intelligent Systems and Computing (Vol. 229 AISC, pp. 155-165). (Advances in Intelligent Systems and Computing; Vol. 229 AISC). Springer Verlag. https://doi.org/10.1007/978-3-642-39829-2_14

Effects of corporate tax rate cuts on firms' investment and valuation : A microsimulation approach. / Kubota, Keiichi; Takehara, Hitoshi.

Advances in Intelligent Systems and Computing. Vol. 229 AISC Springer Verlag, 2014. p. 155-165 (Advances in Intelligent Systems and Computing; Vol. 229 AISC).

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Kubota, K & Takehara, H 2014, Effects of corporate tax rate cuts on firms' investment and valuation: A microsimulation approach. in Advances in Intelligent Systems and Computing. vol. 229 AISC, Advances in Intelligent Systems and Computing, vol. 229 AISC, Springer Verlag, pp. 155-165, 9th Conference of the European Social Simulation Association, ESSA 2013, Warsaw, 13/9/16. https://doi.org/10.1007/978-3-642-39829-2_14
Kubota K, Takehara H. Effects of corporate tax rate cuts on firms' investment and valuation: A microsimulation approach. In Advances in Intelligent Systems and Computing. Vol. 229 AISC. Springer Verlag. 2014. p. 155-165. (Advances in Intelligent Systems and Computing). https://doi.org/10.1007/978-3-642-39829-2_14
Kubota, Keiichi ; Takehara, Hitoshi. / Effects of corporate tax rate cuts on firms' investment and valuation : A microsimulation approach. Advances in Intelligent Systems and Computing. Vol. 229 AISC Springer Verlag, 2014. pp. 155-165 (Advances in Intelligent Systems and Computing).
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