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Share Valuation under Geometric Brownian Motion with a Poisson Imputation Tax Change

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  • John Pointon

Abstract

A share valuation model is developed on the basis of dividends following a geometric Brownian motion. An imputation tax system is chosen, although this can be collapsed into a classical system. The possibility of changes in tax rates and shareholder tax credits is introduced by means of a Poisson jump. Capital gains are assumed to be tax‐free through either annual or other exemptions. Using Itô’s Lemma, a new share valuation formula is derived. This is recast in terms of the cost of capital and the mean time to the fiscal shock.

Suggested Citation

  • John Pointon, 1998. "Share Valuation under Geometric Brownian Motion with a Poisson Imputation Tax Change," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 25(1‐2), pages 103-113, January.
    • Handle: RePEc:bla:jbfnac:v:25:y:1998:i:1-2:p:103-113
    DOI: 10.1111/1468-5957.00179
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    Cited by:

    1. Rainer Niemann, 2001. "Tax Rate Uncertainty and Investment Behavior," CESifo Working Paper Series 557, CESifo.
    2. Margaret Lamb & Andrew Lymer, 1999. "Taxation research in an accounting context: future prospects and interdisciplinary perspectives," European Accounting Review, Taylor & Francis Journals, vol. 8(4), pages 749-776.
    3. Rainer Niemann, 2007. "The Impact of Tax Uncertainty on Irreversible Investment," CESifo Working Paper Series 2075, CESifo.
    4. Niemann, Rainer, 2006. "The impact of tax uncertainty on irreversible investment," arqus Discussion Papers in Quantitative Tax Research 21, arqus - Arbeitskreis Quantitative Steuerlehre.

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