Effects of Tax Rate Changes on the Cost of Capital: The Case of Japanese Firms

Keiichi Kubota · Hitoshi Takehara

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Corporate Taxation and Avoidance Corporate Finance and Governance Financial Reporting and Valuation Research

Abstract

The paper studies the effects that tax rate changes have on the cost of capital when firms follow target leverage ratios. We show that changes in individual income tax rates are neutral. The focus therefore is on the effects of changes in marginal corporate tax rates. These effects are computed for Japanese firms. Special emphasis is given to changes in statutory tax rates and provisions that allow firms to carry their losses forward.

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1977Determinants of corporate borrowing 1976Econometric policy evaluation: A critique 1963CORPORATE INCOME TAXES AND THE COST OF CAPITAL: A CORRECTION 1991The Theory of Capital Structure 1980Optimal capital structure under corporate and personal taxation 1977DEBT AND TAXES*1990Do Taxes Affect Corporate Financing Decisions?1991Taxes and Business Strategy: A Planning Approach

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