Valuation of Tax Loss Carryforwards and Carrybacks, and Its Implications for Dynamic Portfolio Selection

32 Pages Posted: 10 Mar 2015

See all articles by Suresh Govindaraj

Suresh Govindaraj

Rutgers University - Rutgers Business School - Newark and New Brunswick

Michael N. Katehakis

Rutgers, The State University of New Jersey - Management Science & Information Systems

Nilofar Varzgani

Rutgers Business School

Date Written: March 9, 2015

Abstract

The issue of valuing tax loss-carryforwards (TCLFs) and carrybacks (TLCBs) arises frequently in theory and practice. While there have been a number of empirical papers that have shown TLCFs (TLCBs) are value relevant, there is little guidance on how to actually value these. The few analytical papers that have attempted to provide valuation formulas are stylized and inadequate. Incorporating the institutional aspects of the tax code, we construct a general algorithmic discrete time framework for valuing TLCFs (TLCBs). We provide explicit formulas with practical applications, and discuss it's implications for dynamic portfolio selection decisions.

Keywords: tax-loss carryforwards; tax-loss carrybacks; valuation; valuation allowance; consumption- investment allocation, portfolio selection with taxes

JEL Classification: D90, E21, G11, G34, H25

Suggested Citation

Govindaraj, Suresh and Katehakis, Michael N. and Varzgani, Nilofar, Valuation of Tax Loss Carryforwards and Carrybacks, and Its Implications for Dynamic Portfolio Selection (March 9, 2015). Available at SSRN: https://ssrn.com/abstract=2576348 or http://dx.doi.org/10.2139/ssrn.2576348

Suresh Govindaraj (Contact Author)

Rutgers University - Rutgers Business School - Newark and New Brunswick ( email )

1 Washington Park
Room #934
Newark, NJ 07102
United States

Michael N. Katehakis

Rutgers, The State University of New Jersey - Management Science & Information Systems ( email )

180 University Ave.
Newark, NJ 07102-1895
United States

Nilofar Varzgani

Rutgers Business School ( email )

1 Washington Park
Newark, NJ 07102
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
178
Abstract Views
1,165
rank
166,671
PlumX Metrics