Graham, John R.; Smith, Clifford W. - In: Journal of Finance 54 (1999) 6, pp. 2241-2262
For corporations facing tax-function convexity, hedging lowers expected tax liabilities, thereby providing an incentive to hedge. We use simulation methods to investigate convexity induced by tax-code provisions. On average, the tax function is convex (although in approximately 25 percent of...