The study examines how the risk of exhausting corporate tax liabilities before deducting interest expense affects corporate leverage. It differs from prior studies in three ways: (1) it uses data compiled by the Internal Revenue Service (IRS) from corporate tax returns rather than accounting data; (2) it measures risk of tax exhaustion more accurately; and (3) it adopts a first‐difference time‐series approach, so that firms act as their own control between adjacent years. These methodological innovations reduce biases caused by measurement error and omitted variables that were present in prior research. The results suggest that, all else being equal, high risk of tax exhaustion reduces firms' use of leverage. As well, the study provides the first evidence that personal taxes significantly affect corporate leverage. The effects on leverage decisions of other variables are also tested and the results are consistent with predictions from prior theoretical work.

The occurrence of conglomerate mergers is somewhat of a mystery. This paper presents a model demonstrating a tax motive for these mergers. Specifically, conglomerate mergers are unions between firms with not highly correlated earning prospects—when one merger partner underperforms (earning inadequate income) in the future, the other is likely to overperform. By amalgamating such firms into common taxable entities, conglomerate mergers create several tax benefits: (1) improved chances that future tax write‐offs and credits will be immediately utilized in full rather than deferred as less valuable loss‐carryforwards; (2) reduced chances that tax write‐offs and credits are permanently lost in bankruptcy; and (3) an enhanced ability to write off the interest on additional debt Empirical support for these results are presented. Given (1) and (2), the U.S. tax law changes in 1981 and 1986 would respectively encourage and discourage merger activity, outcomes that were indeed observed. Consistent with (3), a cross‐sectional examination of U.S. mergers shows that mergers were more likely to increase consolidated leverage when earnings of the predecessor firms were less highly correlated. Nontax‐related bankruptcy costs are not specifically modeled, but firms whose potential tax write‐offs and credits are larger tend to have lower preference for leverage. Thus, in many instances diminishing bankruptcy risk is not a motive for conglomeration, but full utilization of tax write‐offs is. Résumé. L'occurrence de certaines fusions par conglomérat demeure toujours inexpliquée. L'auteur expose un modèle attribuant les fusions de cette nature à des motifs fiscaux. Selon ce modèle, il en serait ainsi lorsque les fusions par conglomérat touchent des entreprises dont les perspectives de gains ne présentent pas de corrélation très élevée — le rendement escompté de l'une des entreprises qui fusionnent est plutôt mince (ses bénéfices étant insatisfaisants), alors que le rendement escompté de l'autre est assez exceptionnel. Le regroupement de ces entreprises sous forme d'entités imposables grâce à la fusion par conglomérat donnerait lieu, toujours selon ce modèle, aux avantages fiscaux suivants: (1) l'augmentation des chances que les éléments susceptibles d'être passés en charges aux fins de l'impôt ou de donner droit à des dégrèvements soient aussitôt utilisés intégralement plutôt que de faire l'objet de reports de perte prospectifs dont la valeur serait diminuée; (2) la réduction des risques que les éléments susceptibles d'être passés en charges aux fins de l'impôt ou de donner droit à des dégrèvements soient perdus à jamais à la suite d'une faillite; et (3) la possibilité accrue de passer en charges l'intérêt sur la dette supplémentaire. Les constatations empiriques confirment ces hypothèses. Étant donné les hypothèses 1 et 2, les modifications apportées à la loi fiscale aux États‐Unis en 1981 et 1986 encourageraient, dans le premier cas, et décourageraient, dans le second, les fusions, ce qui a été observé dans les faits. Conformément à l'hypothèse 3, un examen transversal des fusions ayant eu lieu aux États‐Unis a démontré qu'elles étaient davantage susceptibles d'augmenter l'effet de levier consolidé lorsque les bénéfices des entreprises constituantes présentaient une corrélation moins élevée. Les coûts des faillites qui ne sont pas d'ordre fiscal ne sont pas spécifiquement intégrés au modèle, mais les entreprises dont les possibilités de passation en charges et de dégrèvements sont plus élevées ont tendance à afficher une préférence moins prononcée pour l'effet de levier. À maints égards, donc, la réduction du risque de faillite n'est pas un motif de fusion par conglomérat, tandis que les possibilités de passation en charges le sont.

In this paper we present and estimate an adjustment cost model of industry employment which takes explicit account of both expectations and aggregation over different labour types. The resulting model is subject to a large number of tests and is a highly robust representation of the data. Finally forecasts are produced for manufacturing employment up to 1990.

Journal Article Trade Union Power, Threat Effects and the Extent of Organization Get access S. Rosen S. Rosen University of Rochester and National Bureau of Economic Research Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 36, Issue 2, April 1969, Pages 185–196, https://doi.org/10.2307/2296836 Published: 01 April 1969 Article history Received: 10 June 1968 Revision received: 14 November 1968 Published: 01 April 1969

The Class of Homothetic Isoquant Production Functions Get access S. Clemhout S. Clemhout University of California, Berkeley Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 35, Issue 1, January 1968, Pages 91–104, https://doi.org/10.2307/2974410 Published: 01 January 1968

Journal Article Optimal Investment and Technical Progress Get access S. Chakravarty S. Chakravarty Delhi University Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 31, Issue 3, June 1964, Pages 203–206, https://doi.org/10.2307/2295909 Published: 01 June 1964

Journal Article Trade Barriers in Activity Analysis Get access S. Reiter S. Reiter Standford, California Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 20, Issue 3, 1952, Pages 174–180, https://doi.org/10.2307/2295887 Published: 01 January 1952

Entrepreneur's Risk, Lender's Risk, and Investment Get access S. L. Wellisz S. L. Wellisz Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 20, Issue 2, 1952, Pages 105–114, https://doi.org/10.2307/2295844 Published: 01 January 1952

Journal Article A Critical Note on the Definition of Related Goods Get access S. Ichimura S. Ichimura New York Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 18, Issue 3, 1950, Pages 179–183, https://doi.org/10.2307/2295977 Published: 01 September 1950

Journal Article The Theory of Consumer Monopsony Get access Sidney Weintraub Sidney Weintraub Brooklyn, New York Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 17, Issue 3, 1949, Pages 168–178, https://doi.org/10.2307/2296276 Published: 01 January 1949