Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7355491 | International Review of Economics & Finance | 2018 | 21 Pages |
Abstract
The tax laws of most developed countries are debt biased since firms can deduct interest on debt but not on equity. This bias is known to distort investment decisions. However, less is known about how the debt tax shield affects the ownership of assets when bidders differ financial expertise and thus in optimal use of leverage. We show that the debt tax shield need not always distort ownership efficiency. Assets end up with the socially preferred owner when differences in financial and productive expertise between bidders is small and better financial expertise reduces expected bankruptcy costs.
Keywords
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Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Pehr-Johan Norbäck, Lars Persson, Joacim TÃ¥g,