Abstract
This paper investigates changes in firm values triggered by a hypothetical corporate tax rate cut for Japan. We use multiplicative production functions and firms’ investment decision changes over time via the accumulated process of retained earnings on the simulated path. We find changes in corporate tax rates can enhance the market value of firm equity in most cases, while there are some cases in which the effects are neutral or even detrimental for firm value. We interpret that these mixed results are caused by joint effects of current provisions of tax loss carry-forward and the net balance of tax deferred accounts. We find that past profitability and variability of each firm is crucial to hit exact threshold points at which firms experience value appreciations or not. The results possess important implications to both regulators and corporate financial managers.
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© 2014 Springer-Verlag Berlin Heidelberg
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Kubota, K., Takehara, H. (2014). Effects of Corporate Tax Rate Cuts on Firms’ Investment and Valuation: A Microsimulation Approach. In: Kamiński, B., Koloch, G. (eds) Advances in Social Simulation. Advances in Intelligent Systems and Computing, vol 229. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-39829-2_14
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DOI: https://doi.org/10.1007/978-3-642-39829-2_14
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-39828-5
Online ISBN: 978-3-642-39829-2
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