The popular weighted average cost of capital (WACC) approach to capital budgeting implicitly assumes that a project's debt tax shields will always be used by the firm that adopts the project. We show that even a low probability of selling a project in the future to a firm with a different tax...

Purpose – While an operation's unlevered value is objective, the value of the debt tax shield is subjective since it depends on the capital structure policy of the firm that owns the operation. The purpose of this paper is to explore the implications of this subjective nature of debt tax...

This paper examines how the similarity between the executive compensation leverage ratio and the firm leverage ratio affects the quality of the firm’s investment decisions. A larger leverage gap (i.e., a bigger difference between these two ratios) leads to more investment distortions. Managers...

Purpose – While an operation's unlevered value is objective, the value of the debt tax shield is subjective since it depends on the capital structure policy of the firm that owns the operation. The purpose of this paper is to explore the implications of this subjective nature of debt tax...