Firm Financing in Chile after the 2014-15 Tax Reform : Debt or Equity?

Hernandez T., Leonardo

World Bank, Washington, DC

关键词: tax reform;    debt;    equity;    retained earnings;    income tax rate;   

DOI  :  10.1596/1813-9450-7861
RP-ID  :  WPS7861

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

This paper analyzes the effects of the2014-15 Chilean tax reform on firms' incentives toretain earnings and finance their operations with equityversus debt. The analysis comprises a comparison with thesituation of the pre-reform period, and draws someconclusions about firms' valuation. The approachconsists of analyzing the effects of the tax reform on totaltaxes paid and cash flows received by investors. Althoughthe final effects are specific to the firm and investor, asthey depend on the firm's dividend payout ratio andeach investor's personal income tax rate, the resultsshow that in general the reform reduced the value of firmsand lessened the incentives to retain earnings. Thesimulations show that the majority of firms would choose theaccrual or "attributed" tax–based system. However,if the latter is not permitted, firms will choose debt overequity. The cash-based or semi-integrated system becomes thepreferred option only when elusion (or tax avoidance) is possible.