Lease valuation when taxable earnings are a scare resource
Article Abstract:
In this paper, we examine leasing as a tax-arbitrage instrument. Analysis of a sample of UK leases presented in this paper suggests that lessors earn large positive NPVs. Our theoretical model seeks to explain these positive NPVs in terns of a market price for a scarce resource that we identify as scarce taxable earnings. Using these prices, the model permits a lessor to determine whether the profitability of a proposed set of lease contracts can be improved by writing a different set of contracts that makes better use of the lessor's taxable earnings. There may be two reasons why an initial portfolio of contracts may be suboptimal. Either there may be clienteles or the leasing market may be inefficient. Subsequently, we discuss reasons why the leasing market may be characterized by clienteles, and, using two different samples of leases, we test whether the leasing market is segmented and efficient. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1987
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Investing in bankrupt firms
Article Abstract:
We examine the investment characteristics of firms electing to enter bankruptcy, between 1973 and 1982. Comparisons are made before and after the Bankruptcy Reform Act of 1978. Our results indicate that the 1978 Act had no significant impact on bankruptcy decisions or resolutions for actively traded firms. Trading in bankrupt firms' securities is becoming more common, but no abnormal returns appear to be available. Systematic risk does not change significantly with the filing of bankruptcy, but there is a significant increase in return variance. The financial markets also react to various announcements of stages in the reorganization process. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1988
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