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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/25846
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| Title: | | The equity trap, the cost of capital and the firm's growth path  |
| Authors: | | Lindhe, Tobias Södersten, Jan |
| Issue Date: | | 2006 |
| Series/Report no.: | | CESifo working paper 1801 |
| Abstract: | | This paper reconsiders Sinns (1991) nucleus theory of the corporation by comparing two different regimes for the equity trap. In the first of these, all cash paid to the shareholders is taxed as dividends, in the second, shareholders are allowed a tax-free return of capital contributed through new issues. A substantial difference is found between the regimes in the size of initial equity injections, although in both regimes, no dividends are paid until a new long-run equilibrium is reached. Contrary to Sinn, we find that with optimal behavior, the cost of new equity is lower than suggested by conventional formulae. |
| JEL: | | H24 H25 H32 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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