The effect of tax depreciation on the stochastic replacement policy

Adkins, Roger; Paxson, Dean

doi:10.1016/j.ejor.2013.01.050

Cited by 17 publications

(8 citation statements)

References 25 publications

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“…We find that both 𝛽 and 𝛽 are not significantly different from zero, suggesting that prior to the tax policy change, firms in our treatment and control groups did not exhibit different levels of TFP. Consistent with our previous findings from model (2), results show a significant and positive coefficient ( 𝛽 on 𝑇𝑟𝑒𝑎𝑡 , (0.044), representing the immediate benefits accelerated depreciation brings to adopting firms in the same year of the policy adoption. We also discover that both 𝛽 (0.059) and 𝛽 (0.055) are significantly positive, indicating that the adoption of accelerated depreciation has a trailing effect on enhancing firm value that lasts even two years post-adoption.…”

Section: Baseline Difference-in-differences Resultssupporting

confidence: 90%

How Do Tax Incentives Affect Firm Value? Evidence from China

Peng,

Savannah Yuanyuan Guo,

2023

FBEM

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Using a unique Chinese quasi-experiment of corporate tax policy changes in 2014, we examine the effectiveness of introducing accelerated depreciation as a corporate tax incentive on improving firm value. The results show that, relative to control firms, treatment firms that received the accelerated depreciation tax treatment experience significant improvement in total factor productivity (TFP) both immediately and in the long term. We also find that the enhanced firm value is achieved through optimized capital structure and increased level of innovation. We further find that the beneficial effects are more pronounced in state-owned enterprises (SOE), firms with high labor intensity, financial constraints, high growth, and locations in high marketization provinces. Our research uniquely contributes by providing evidence of the microeconomic benefits of corporate tax policies in an emerging market.

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Section: Baseline Difference-in-differences Resultssupporting

confidence: 90%

How Do Tax Incentives Affect Firm Value? Evidence from China

Peng,

Savannah Yuanyuan Guo,

2023

FBEM

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“…Hu et al [3], referring to McDonald and Siegel [2], show an approach for the n-dimensional case and solve the two-dimensional case in general. Recently, Adkins and Paxon [5] and Gahungu and Smeers [6] have introduced an algorithm to determine the value of a multi-asset exchange problem for the threedimensional case and an n-dimensional case.…”

Section: Related Literaturementioning

confidence: 99%

Valuation of CCS-ready coal-fired power plants: a multi-dimensional real options approach

Rohlfs

Madlener

2011

Energy Syst

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In this paper, we develop a multi-factor real options model for a two-stage investment problem, where a coal-fired power plant is later retrofitted with carbon capture and storage (CCS). A capture-ready power plant with lower retrofit costs is compared with a conventional one and higher CCS retrofit costs. The stochastic variables considered are the price of electricity, the price of CO 2 permits, the costs of CO 2 capture, transporting and storage (CTS), and CCS retrofit investment costs. Fuel costs are disregarded due to the constant boiler size in the case of a retrofit, resulting in constant fuel consumption but lower electricity output of the retrofitted plant. Two retrofit options that reduce the power plant's net efficiency from 46% to 30% and 35%, respectively, and an integrated CCS power plant with an efficiency of 38.5% are investigated. In a numerical simulation with realistic parameterization, we find a low probability for a retrofit even after fifteen to twenty years, caused by the high uncertainty and the adverse impact of the electricity price and the CO 2 permit price. This renders the capture-ready option unattractive, and calls for investments in conventional coal-fired power plants with later CCS investments at higher costs than in the case of a capture-ready pre-installation.

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“…where τ is the corporate tax rate, T is the optimal time to invest, Q is the optimal entry capacity level, and λ(k 0 +k 1 Q)τ is the continuous depreciation tax shield value. For the sake of simplicity, we assume a declining balance depreciation at the rate of λ as in Adkins and Paxson (2013).…”

Section: The Model 21 Without Subsidymentioning

confidence: 99%

“…Very few real options studies consider the effect of assets depreciation, with Adkins and Paxson (2013) and Sureth (2002) being notable exceptions. The former study shows that it has significant implications on investments, hastening investment, whereas the latter finds that a higher depreciation rate can defer investment.…”

Section: Introductionmentioning

confidence: 99%