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Tax Clienteles and Optimal Capital Structure under Uncertainty

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  • Zechner, Josef

Abstract

This article demonstrates that investors' heterogeneous tax status implies that they value bonds differently at the margin. Due to asymmetric personal taxes, high-risk bonds generate a higher amount of taxable income than low-risk bonds and are, therefore, held by investors in low tax brackets. In such a setting, firms can increase their value by choosing a capital structure that attracts a particular bondholder clientele. The author analyzes how bondholder clienteles change as the uncertainty about a bond's final payoff is resolved over time and shows how tax-clientele effects influence firms' capital structure decisions. Copyright 1990 by the University of Chicago.

Suggested Citation

  • Zechner, Josef, 1990. "Tax Clienteles and Optimal Capital Structure under Uncertainty," The Journal of Business, University of Chicago Press, vol. 63(4), pages 465-491, October.
    • Handle: RePEc:ucp:jnlbus:v:63:y:1990:i:4:p:465-91
    DOI: 10.1086/296517
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    Cited by:

    1. Bongaerts, Dion & Schoenmaker, Dirk, 2024. "Liquidity and clientele effects in green debt markets," Journal of Corporate Finance, Elsevier, vol. 86(C).
    2. Drobetz, Wolfgang & Pensa, Pascal & Wöhle, Claudia B., 2004. "Kapitalstrukturtheorie in Theorie und Praxis: Ergebnisse einer Fragebogenuntersuchung," Working papers 2004/09, Faculty of Business and Economics - University of Basel.
    3. Babkin, Anton & Glover, Brent & Levine, Oliver, 2017. "Are corporate inversions good for shareholders?," Journal of Financial Economics, Elsevier, vol. 126(2), pages 227-251.
    4. Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August.
    5. Maßbaum, Alexandra & Sureth, Caren, 2008. "The impact of thin capitalization rules on shareholder financing," arqus Discussion Papers in Quantitative Tax Research 39, arqus - Arbeitskreis Quantitative Steuerlehre.
    6. Frank Milne & Xing Jin, 2006. "Taxation And Transaction Costs In A General Equilibrium Asset Economy," Working Paper 1111, Economics Department, Queen's University.
    7. Joel M. Vanden, 2016. "Optimal capital structures for private firms," Annals of Finance, Springer, vol. 12(2), pages 245-273, May.

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