Value of Debt Tax Shields in Colombia: An Empirical Study

Abstract

The Spanish version of this paper can be found http://ssrn.com/abstract=1899685

This paper estimates the value of tax shields, using the discounted cash flow method for 23 major non financial firms listed in the Bolsa de Valores de Colombia (Colombian Stock Exchange) between 2001 and 2010. Our results show that on average this value represents between 7.6% and 9.3% of firm value, depending on which discount rate is used for tax shields. It also finds that firms’ average leverage is low relative to other countries. Using Data Panel regressions, no conclusive evidence was found on whether or not debt created value for the sampled firms within that timespan.

Keywords: Debt Tax Shields, Discount Rates, Firm Value, Leverage, Colombia

JEL Classification: G12, G32, M21, M41