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Ownership, Taxes and Default

Author

Listed:
  • Giovanna Nicodano

    (University of Turin)

  • Luca Regis

    (IMT School for Advanced Studies Lucca)

Abstract

This paper determines ownership and leverage of two units facing a tax-bankruptcy trade-off. Connected units have higher leverage and lower tax burden, because of internal support through both bailouts and corporate dividends. Ownership adjusts to additional tax provisions. A hierarchical group with a wholly-owned subsidiary results from Thin Capitalization rules. The presence of corporate dividend taxes generates horizontal groups, or a Special Purpose Vehicle, or a private equity fund. Combinations of tax provisions contain tax savings, debt and default in connected units. No bailout provisions, such as the Volcker rule, succeed in reducing leverage and default.

Suggested Citation

  • Giovanna Nicodano & Luca Regis, 2015. "Ownership, Taxes and Default," Working Papers 7/2015, IMT School for Advanced Studies Lucca, revised Jul 2015.
    • Handle: RePEc:ial:wpaper:7/2015
    as

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    File URL: http://eprints.imtlucca.it/2735/1/WP_2015_7%20%281%29.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Ownership structure; Capital structure; Dividend taxes; Thin Capitalization; Groups; Securitization; Private equity;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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