Journal of Finance Vol. 57 No. 5 2002

Valuation of the Debt Tax Shield

Deen Kemsley¹; Doron Nissim^2,3

¹ Columbia Business School and Yale School of Management, · ² Cornell University · ³ University of California, Berkeley

Abstract

In this study, we use cross‐sectional regressions to estimate the value of the debt tax shield. Recognizing that debt is correlated with the value of operations along nontax dimensions, we estimate reverse regressions in which we regress future profitability on firm value and debt rather than regressing firm value on debt and profitability. Reversing the regressions mitigates bias and facilitates the use of market information to control for differences in risk and expected growth. Our estimated value for the debt tax shield is approximately 40 percent (10 percent) of debt balances (firm value), net of the personal tax disadvantage of debt.

DOI

10.1111/0022-1082.00488

Volume

57

Issue

5

Pages

2045-2073

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

APA 7 MLA 9 Chicago (author–date) Harvard Elsevier Harvard (JFE, JBF…) The Accounting Review Academy of Management American Marketing Association INFORMS (Management Science) Copy citation Copied ✓