• Corpus ID: 33282173

Are Firms Really Under-levered?

@inproceedings{Schallheima2004AreFR,
  title={Are Firms Really Under-levered?},
  author={James Schallheima and Kyle Wellsa},
  year={2004}
}
In a recent paper, Graham (2000) finds that firms, on average, are under-levered and could increase firm value by increasing debt levels. This paper compares Graham’s measure of under-leverage -called kink -to the difference between tax expense and taxes paid (tax spread) as a proxy for firms’ use of (unobservable) non-debt tax shields, to show that firms may not need as much debt tax shields as suggested by kink. We find a significant and positive relation between kink and the tax spread… 

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