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Tax Shield, Bankruptcy and Interest CeilingSven ArnoldHHL Leipzig Graduate School of Management Alexander D.F. LahmannHHL Leipzig Graduate School of Management Bernhard SchwetzlerHHL Leipzig Graduate School of Management - Department of Finance January 12, 2011 Abstract: This paper analyses the tax shield under realistic assumptions: no immediate refund and potential corporate bankruptcy for different financing policies. Assuming a German setting, we additionally investigate the impact of the interest ceiling (“Zinsschranke”) introduced by the German Tax Reform Act 2008 on the tax shield value. Our analysis rests on an option pricing model in a single period setting and on a Monte Carlo Simulation model in a multiperiod setting. We find the introduction of possible bankruptcy to have a significant impact on the tax shield; in contrast the effect of the interest ceiling is negligible.
Note: Downloadable document is in German. Number of Pages in PDF File: 38 Keywords: tax shield, bankruptcy and corporate value JEL Classification: C15, G32, H25, G12 working papers seriesDate posted: January 20, 2011Suggested CitationContact Information
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