This paper investigates the direct theoretical relationship between the variance of stock returns (σ2E) and financial leverage (L) considering both corporate and personal taxes. Using a dataset of U.S. industrial firms, we examine the variance of stock returns as a function of the firm’s...

In contrast to the capital structure propositions in Modigliani and Miller (1958, 1963), most empirical research has not been able to find a positive association between stock returns and financial leverage. Several reasons have been proposed for this, including suggestions about omitted risk...

This paper examines the cross-sectional relation between leverage and future stock returns. Prior research documents a puzzling negative correlation. We show that it is largely caused by firms' use of internal financing when having significant off-balance-sheet operating assets due to...

Using a random sample of 60% of our cross-sectional data on U.S. stocks from 1964 to 2012, we trained four machine learning algorithms to forecast debt paydown over a one-year horizon. An evaluation of these candidate models on half of the hold-out sample (20% of the original dataset) showed...

The American Jobs Creation Act of 2004 permitted a one-time 85% dividend received deduction for repatriated foreign earnings. A stated purpose of this legislation was to permit companies to access foreign earnings domestically that would have been too costly previously because of repatriation...

Tax minimization strategies may lead to significant tax savings, which could, in turn, increase firm value. However, such strategies are also associated with significant costs, such as expected penalties and planning, agency, and reputation costs. The overall impact of firms' tax minimization...

We study the impact of the Domestic Production Activities Deduction (DPAD) on mergers and acquisitions. DPAD reduces corporate tax rates on income from work or goods made in the US. Results indicate that the quantity and quality of acquisition bids by DPAD-advantaged firms conform to the...

I investigate the effect of different measures of corporate taxes on stock returns. The results support the partisan politics cycle effect on equity returns. A high minus low (Hi-Lo) portfolio sorted by (Total Corporate Taxes/Total Assets) has an annual return of +3.8% during Republican...