Inflationary Effects in the Capital Investment Process: an Empirical Examination

Kim, Moon K.

doi:10.1111/j.1540-6261.1979.tb03446.x

Cited by 12 publications

(3 citation statements)

References 13 publications

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“…These results imply that contrary to what is usually believed on theoretical grounds (see, e.g., Nelson [7], Gonedes [4], Kim [6]), inflation does not necessarily decrease all forms of capital investment. This may partially explain the surprising empirical findings of Gonedes [4] that capital investment has not been negatively correlated with inflation.…”

Section: Discussioncontrasting

confidence: 90%

The Effects of Inflation and Taxes on Growth Investments and Replacement Policies

Brenner¹,

Venezia²

1983

The Journal of Finance

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This paper investigates the effect of inflation and taxes on the optimal duration of investments. The main conclusion is that inflation does not always increase the duration of investments. For example, in the case of equipment with a short replacement cycle, increased inflation tends to decrease the duration of the cycle. Contrary to the common theoretical analysis, these results imply that inflation may increase some forms of capital investments.

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Section: Discussioncontrasting

confidence: 90%

The Effects of Inflation and Taxes on Growth Investments and Replacement Policies

Brenner¹,

Venezia²

1983

The Journal of Finance

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“…The potential effects of contemporary tax accounting methods under conditions of inflation have attracted substantial attention (see, e.g., Bulow 1975, 1976;Davidson and Weil 1976;Nelson 1976;Hong 1977;and Kim 1979). In particular, there has been substantial interest in the potential joint effects of price-level changes and historical cost accounting methods on real tax burdens.…”

Section: Introductionmentioning

confidence: 99%

Evidence on the "Tax Effects" of Inflation Under Historical Cost Accounting Methods

Gonedes¹

1981

J BUS

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It is often argued that the failure to use indexation (i.e., the use of historical cost accounting methods) implies that real income tax rates will vary directly with rates of inflation. This substantive effect of mere bookkeeping methods is often predicted even though it is recognized to have some adverse implications. This is the "tax effects of inflation" hypothesis. The major objective of this paper is to examine the descriptive adequacy of this hypothesis using a variety of macro-economic data for the years 1929-74. My empirical results appear to be substantially inconsistent with the tax-effects hypothesis. Disciplines Accounting | Taxation CommentsThis article is available online at:

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“…Not all changes in the capital-labor ratio are caused by inflation. But if inflation does affect the investment and employment decisions of the firm, we should observe a pattern of inflation effects over periods with high and low inflation (see Hong, 1977;Kim, 1979). Also, the variable (1 + R)/W may reflect differences in labor skills and therefore, is correlated with the degree of substitutability between capital and labor.…”

Section: Notesmentioning

confidence: 96%

The cross-sectional effect of inflation on corporate investment and employment

Kim

1993

Rev Quant Finan Acc

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Abstract. This paper examines the cross-sectional effect of inflation on the investment and employment decisions. The paper shows that more heavily capitalized firms tend to have a greater reduction in the capital-labor ratio during an inflationary period. The paper also shows that firms with a higher cost of debt to wage ratios and a larger amount of depreciation shelter tend to use more labor in the inflationary period. Empirical results are generally consistent with these arguments.

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Inflationary Effects in the Capital Investment Process: an Empirical Examination

Cited by 12 publications

References 13 publications

The Effects of Inflation and Taxes on Growth Investments and Replacement Policies

The Effects of Inflation and Taxes on Growth Investments and Replacement Policies

Evidence on the "Tax Effects" of Inflation Under Historical Cost Accounting Methods

The cross-sectional effect of inflation on corporate investment and employment

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