Tax Loss Carryovers in a Competitive Environment

34 Pages Posted: 8 Oct 2014 Last revised: 22 Jul 2017

See all articles by Anja De Waegenaere

Anja De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER

Richard C. Sansing

Tuck School of Business at Dartmouth

J. Wielhouwer

VU University Amsterdam

Date Written: July 21, 2017

Abstract

We examine operating and investment decisions in a duopolistic industry in which an initial investment in research yields an immediate tax benefit for one firm, but creates a net operating loss carryover for the other firm. We show that the conventional wisdom that suggests that the first firm is in a better position to make the research investment need not hold in a competitive environment. This occurs because if both firms invest in research, the firm with the net operating loss carryover makes more aggressive investment decisions following successful research.

Keywords: Net operating loss carryovers, R&D investments, capital expenditures

JEL Classification: H25, D21, H32

Suggested Citation

De Waegenaere, Anja M.B. and Sansing, Richard C. and Wielhouwer, Jacco L., Tax Loss Carryovers in a Competitive Environment (July 21, 2017). Tuck School of Business Working Paper No. 2506636. Available at SSRN: https://ssrn.com/abstract=2506636 or http://dx.doi.org/10.2139/ssrn.2506636

Anja M.B. De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Richard C. Sansing (Contact Author)

Tuck School of Business at Dartmouth ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-0392 (Phone)
603-646-1308 (Fax)

Jacco L. Wielhouwer

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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