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Asian Review of Financial Research, Vol., No..
pp.1391~1415
pp.1391~1415
Does Corporate Income Tax Matter on Stock Return?
Chune Young Chung Department of Finance and Management Science, College of Business, Washington State University,
This paper studies the theoretical and quantitative implications of corpo- rate income tax on asset pricing in a two-tree aggregate endowment economy. I ?nd a mechanism through which corporate income tax increases and de- creases ?portfolio risk?associated with rebalancing motive and introduce a new tax-related systematic risk. The tax a¢´ects portfolio con?guration, re- lated to ?nancial leverage, and plays an important role in determining price of stock since it generates both stabilization and destabilization on the volatility of return. A higher volatility is associated with a greater co-movement be- tween consumption growth and stock return. Stabiliazation e¢´ect dominates destabilization e¢´ect, and thus the tax relieve the risk.
Chune Young Chung
This paper studies the theoretical and quantitative implications of corpo- rate income tax on asset pricing in a two-tree aggregate endowment economy. I ?nd a mechanism through which corporate income tax increases and de- creases ?portfolio risk?associated with rebalancing motive and introduce a new tax-related systematic risk. The tax a¢´ects portfolio con?guration, re- lated to ?nancial leverage, and plays an important role in determining price of stock since it generates both stabilization and destabilization on the volatility of return. A higher volatility is associated with a greater co-movement be- tween consumption growth and stock return. Stabiliazation e¢´ect dominates destabilization e¢´ect, and thus the tax relieve the risk.
Asset Pricing,Corporate Tax,Financial Leverage
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