Since 2014
Tax Code Change Impacts on the Practice of Corporate Finance
Research in Economics and Management
View Archive Info| Field | Value | |
| Title |
Tax Code Change Impacts on the Practice of Corporate Finance
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| Creator |
Duggal, Rakesh
Budden, Michael C. |
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| Description |
Public Law No. 115-97 (initially introduced in the house as the Tax Cuts and Jobs Act or TCJA) passed by Congress in 2017 has significantly revised the Internal Revenue Code of 1986. Since taxes play an important role in financial decision-making, the TCJA will impact decisions in many areas of corporate finance, including capital structure and capital budgeting. By using S&P 500 data, this paper attempts to broadly estimate these impacts. The lower corporate tax rate under the new law reduces the corporate incentive to borrow to benefit from the interest expense tax shield. The lower tax rate also reduces the depreciation tax shield and marginally raises the average cost of capital. However, an S&P 500 firm on average will receive an estimated $239 million per year in tax-related benefits, based on 2017 financial data. This annual benefit will decrease after five years as the 100% expensing of investments is gradually withdrawn after 2023.
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| Publisher |
SCHOLINK INC.
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| Contributor |
—
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| Date |
2020-06-18
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion Peer-reviewed Article |
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| Format |
application/pdf
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| Identifier |
http://www.scholink.org/ojs/index.php/rem/article/view/2972
10.22158/rem.v5n3p21 |
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| Source |
Research in Economics and Management; Vol 5, No 3 (2020); p21
2470-4393 2470-4407 |
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| Language |
eng
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| Relation |
http://www.scholink.org/ojs/index.php/rem/article/view/2972/3009
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| Rights |
Copyright (c) 2020 Rakesh Duggal, Michael C. Budden
http://creativecommons.org/licenses/by/4.0 |
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