Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/25846 
Year of Publication: 
2006
Series/Report no.: 
CESifo Working Paper No. 1801
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper reconsiders Sinn's (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
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