TY  - JOUR
U1  - Zeitschriftenartikel, wissenschaftlich - begutachtet (reviewed)
A1  - Fischer, Max
A1  - Krause, Marko
A1  - Lahmann, Alexander
A1  - Stimper, Franziska
T1  - Firm valuation with state dependent COD taxation
JF  - The quarterly review of economics and finance
N2  - Standard models on firm valuation, incorporating risky debt, assume a certain tax treatment of a cancellation of indebtedness (COD). Most valuation procedures solely discuss two polar cases: either the COD is strictly taxed on its entirety or not taxed at all. Considering the predominant national tax jurisdictions in G7 and many other countries, this assumption is far from being realistic. We model a state dependent taxation of a COD considering the firm's state in default and further contingencies, including a partial taxation. We show how to include this stochastic interdependency into the pricing of the value of the tax shield and the WACC. Compared to the case of full taxation of a COD this potentially increases the value of tax savings and decreases the discount rate, since less taxes are paid in states with exceptions of a tax on a COD, vice versa for the case of no taxation on a COD. Furthermore, in case of an exemption from taxation of a COD, pricing equations depend on the distribution of total losses on interest and principal payments.
KW  - Risky debt
KW  - Tax treatment of cancelled debt
KW  - COD
KW  - Tax savings
KW  - WACC
Y1  - 2022
SN  - 1061-9769
SS  - 1061-9769
U6  - https://doi.org/10.1016/j.qref.2020.10.012
DO  - https://doi.org/10.1016/j.qref.2020.10.012
VL  - 84
IS  - May 2022
SP  - 550
EP  - 561
ER  -