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A simple approach to valuing a multinational firm's tax shields

Applied financial economics, 2013-09, Vol.23 (18), p.1447-1455 [Peer Reviewed Journal]

Copyright Published with license by Taylor & Francis 2013 ;ISSN: 0960-3107 ;EISSN: 1466-4305 ;DOI: 10.1080/09603107.2013.829199

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  • Title:
    A simple approach to valuing a multinational firm's tax shields
  • Author: Pierru, A. ; Atallah, T.
  • Subjects: APV ; corporate tax rate ; financial leverage ; multinational firm ; tax shields
  • Is Part Of: Applied financial economics, 2013-09, Vol.23 (18), p.1447-1455
  • Description: We consider a multinational firm that seeks to maximize its total amount of interest tax shield while following a constant debt ratio policy on a global level. The firm's total interest tax shield can then be considered as a piecewise-linear increasing function that is concave with respect to the firm's value. As a result, the expected interest tax shield can be much safer than the firm's free cash flow, depending on the firm's current value. With a simple no-arbitrage model, we derive the discount factor to apply to the total interest tax shield expected by the multinational firm. We show that this formula generalizes standard results of the literature on interest tax shields valuation.
  • Publisher: Routledge
  • Language: English
  • Identifier: ISSN: 0960-3107
    EISSN: 1466-4305
    DOI: 10.1080/09603107.2013.829199
  • Source: Taylor & Francis Open Access
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