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Corporate tax, financial leverage, and portfolio risk

Title
Corporate tax, financial leverage, and portfolio risk
Authors
Choi P.M.S.Chung C.Y.Kim D.
Ewha Authors
최문섭
SCOPUS Author ID
최문섭scopus
Issue Date
2020
Journal Title
North American Journal of Economics and Finance
ISSN
1062-9408JCR Link
Citation
North American Journal of Economics and Finance vol. 54
Keywords
Corporate taxFinancial leveragePortfolio riskStock return
Publisher
Elsevier Inc.
Indexed
SSCI; SCOPUS scopus
Document Type
Article
Abstract
We examine the theoretical implications of corporate income tax for a risky portfolio in a aggregate-endowment economy. In this model, corporate income tax affects the portfolio risk associated with the rebalancing motive during market clearance. An asset is defined as a portfolio of stocks and bonds whose portfolio weights are similar to financial leverage. Corporate tax can decrease after-tax consumption from dividends (increase leverage) and increase the tax shield that increases dividends (decrease leverage). Changes in dividends are responsible for the correlation between expected dividend growth and consumption growth and, thus, affect stock pricing and returns. Overall, the model is characterized by tax-induced portfolio risk associated with financial leverage. © 2020 Elsevier Inc.
DOI
10.1016/j.najef.2020.101264
Appears in Collections:
경영대학 > 경영학전공 > Journal papers
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