Taxes, Debt, Investments and the Choice of Business Form with Overconfident and Pessimistic Entrepreneurs

20 Pages Posted: 24 Jun 2019

See all articles by Anton Miglo

Anton Miglo

Birmingham City University

Magdalena Brodziak

Birmingham City University

Date Written: February 1, 2019

Abstract

This article is the first to analyze the simultaneous choice of investment and organizational form using the behavioral finance approach. When entrepreneurs are rational, the choice of investment and organizational form is irrelevant in most cases. However, when entrepreneurs are overconfident/pessimistic, it leads to overinvestment/underinvestment. We show that a combination of corporate tax for limited liability businesses along with a universal personal income tax can improve the efficiency of decision-making and increase social surplus.

Keywords: corporate tax, overconfidence, overinvestment, unlimited liability, limited liability, imperfect loss-offset, debt

JEL Classification: D82, D89, D90, G32, H21, H32, L26, L29

Suggested Citation

Miglo, Anton and Brodziak, Magdalena, Taxes, Debt, Investments and the Choice of Business Form with Overconfident and Pessimistic Entrepreneurs (February 1, 2019). Available at SSRN: https://ssrn.com/abstract=3408732 or http://dx.doi.org/10.2139/ssrn.3408732

Anton Miglo (Contact Author)

Birmingham City University ( email )

School of Social Sciences
City North Campus
Birmingham, West Midlands B42 2SU
United Kingdom

HOME PAGE: http://https://www.bcu.ac.uk/business-school/about-us/our-staff/anton-miglo

Magdalena Brodziak

Birmingham City University ( email )

School of Social Sciences
City North Campus
Birmingham, West Midlands B42 2SU
United Kingdom

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