Employee Stock Options, Corporate Taxes and Debt Policy

Graham, John R.; Lang, Mark H.; Shackelford, Douglas A.

doi:10.2139/ssrn.320901

Employee Stock Options, Corporate Taxes and Debt Policy

AFA 2003 Washington, DC Meetings

58 Pages Posted: 19 Aug 2002

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Mark H. Lang

University of North Carolina at Chapel Hill

Douglas A. Shackelford

University of North Carolina Kenan-Flagler Business School; National Bureau of Economic Research (NBER)

There are 3 versions of this paper

Date Written: June 20, 2003

Abstract

We find that employee stock option deductions lead to large aggregate tax savings for Nasdaq 100 and S&P 100 firms and also affect corporate marginal tax rates. For Nasdaq firms, including the effect of options reduces the estimated median marginal tax rate from 31 percent to 5 percent. For S&P firms, in contrast, option deductions do not affect marginal tax rates to a large degree. Our evidence suggests that option deductions are important nondebt tax shields and that option deductions substitute for interest deductions in corporate capital structure decisions, explaining in part why some firms use so little debt.

Keywords: capital structure, corporate taxes, debt policy, employee stock options, option deductions

JEL Classification: G30, G32, H25, J33

Suggested Citation: Suggested Citation

Graham, John Robert and Lang, Mark H. and Shackelford, Douglas A., Employee Stock Options, Corporate Taxes and Debt Policy (June 20, 2003). AFA 2003 Washington, DC Meetings. Available at SSRN: https://ssrn.com/abstract=320901 or http://dx.doi.org/10.2139/ssrn.320901