Effects of tax rate changes on the cost of capital: The case of Japanese firms

Keiichi Kubota, Hitoshi Takehara

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

The paper studies the effects that tax rate changes have on the cost of capital when firms follow target leverage ratios. We show that changes in individual income tax rates are neutral. The focus therefore is on the effects of changes in marginal corporate tax rates. These effects are computed for Japanese firms. Special emphasis is given to changes in statutory tax rates and provisions that allow firms to carry their losses forward.

Original languageEnglish
Pages (from-to)163-185
Number of pages23
JournalFinanzArchiv
Volume63
Issue number2
DOIs
Publication statusPublished - 2007 Jun 1
Externally publishedYes

Keywords

  • Cost of capital
  • Effective marginal tax rates in Japan
  • Graham's simulation method
  • Loss carry-forward
  • Miller equilibrium

ASJC Scopus subject areas

  • Finance

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