Artikel
Discontinuous financing based on market values and the value of tax shields
The tax shield as present value of debt-related tax savings plays an important role in firm valuation. Driving the risk of future debt levels, the firm's strategy to adjust the absolute debt level to future changes of the firm value, labeled as (re-) financing policy, affects the value of tax shields. Standard discounted cash flow (DCF) models offer two simplified (re-) financing policies originally introduced by Modigliani and Miller (MM) as well as Miles and Ezzell (ME). In this paper, we introduce a discontinuous financing policy that refers to the refinancing intervals, i.e., the maturity structure of the firm's debt. By deriving APV valuation and beta unlevering equations that allow for this discontinuous financing policy, we show the MM and ME policies to be special cases of the proposed extension. While we document the effect of discontinuous refinancing to be economically significant when leverage is high and refinancing periods are extremely long, our results suggest that for low-levered firms with short refinancing periods, the traditional continuous refinancing-based models (like the Miles/Ezzell model) produce relatively robust value estimates. Combining capital structure and maturity structure choices, our model extends the set of feasible financing policies in DCF valuation models.
- Sprache
-
Englisch
- Erschienen in
-
Journal: Business Research ; ISSN: 2198-2627 ; Volume: 11 ; Year: 2018 ; Issue: 1 ; Pages: 149-171 ; Heidelberg: Springer
- Klassifikation
-
Management
Asset Pricing; Trading Volume; Bond Interest Rates
Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
Bankruptcy; Liquidation
- Thema
-
Financing policies
Tax shield
APV
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Arnold, Sven
Lahmann, Alexander
Schwetzler, Bernhard
- Ereignis
-
Veröffentlichung
- (wer)
-
Springer
- (wo)
-
Heidelberg
- (wann)
-
2018
- DOI
-
doi:10.1007/s40685-017-0053-z
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:44 MEZ
Datenpartner
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Objekttyp
- Artikel
Beteiligte
- Arnold, Sven
- Lahmann, Alexander
- Schwetzler, Bernhard
- Springer
Entstanden
- 2018
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