A problem of corporate liquidation policy is studied in a real option setting incorporating taxation, risky debt and conflict of interest between equity holders and debt holders or equity holders and manager. The critical liquidation threshold is derived as a function of four tax schedules and...

This paper contributes to the debate on alternative corporate tax schemes, employing a rigorous real option methodology which has never been used to study both liquidation policy and taxation. Different tax systems are considered, according to whether the tax regime is progressive or flat and...