The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Employee Stock Options, Corporate Taxes, and Debt Policy
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00673.x
John R. Graham, Mark H. Lang, Douglas A. Shackelford
We find that employee stock option deductions lead to large aggregate tax savings for Nasdaq 100 and S&P 100 firms and also affect corporate marginal tax rates. For Nasdaq firms, including the effect of options reduces the estimated median marginal tax rate from 31% to 5%. For S&P firms, in contrast, option deductions do not affect marginal tax rates to a large degree. Our evidence suggests that option deductions are important nondebt tax shields and that option deductions substitute for interest deductions in corporate capital structure decisions, explaining in part why some firms use so little debt.
Capital Gains Taxes and Asset Prices: Capitalization or Lock‐in?
Published: 04/01/2008 | DOI: 10.1111/j.1540-6261.2008.01329.x
ZHONGLAN DAI, EDWARD MAYDEW, DOUGLAS A. SHACKELFORD, HAROLD H. ZHANG
This paper demonstrates that the equilibrium impact of capital gains taxes reflects both the capitalization effect (i.e., capital gains taxes decrease demand) and the lock‐in effect (i.e., capital gains taxes decrease supply). Depending on time periods and stock characteristics, either effect may dominate. Using the Taxpayer Relief Act of 1997 as our event, we find evidence supporting a dominant capitalization effect in the week following news that sharply increased the probability of a reduction in the capital gains tax rate and a dominant lock‐in effect in the week after the rate reduction became effective.