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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27014
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| Title: | Leverage Changes and Product Pricing Incentives -- A Tax Induced Analysis |
| Authors: | Ravid, Abraham S. |
| Issue Date: | Oct-1997 |
| Series/Report no.: | FIN-98-055 |
| Abstract: | This paper provides a tax induced framework which can explain the
linkage between pricing policies and capital structure choice documented
in recent studies by Chevalier (1995a), (1995b) and Phillips (1995). The
model proves that firms will optimally change their pricing decisions
after taking on additional debt. The reason is that the value of debt
related tax shelters and the probability of their use is dependent on
revenues realized in the product market. The direction of change is
shown to depend on several variables, importantly the elasticity of
demand for the firm's product. In an ensuing section, the paper extends
the analysis to provide some insights into the impact of pricing choices
on the promised yield of debt. |
| URI: | http://hdl.handle.net/2451/27014 |
| Appears in Collections: | Finance Working Papers
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