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The Relative Tax Benefits of Alternative Call Features in Corporate Debt

Published online by Cambridge University Press:  06 April 2009

Ivan E. Brick  and
Buckner A. Wallingford
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Abstract

This paper examines the differential tax treatment of the borrower and lender at the time debt is called as a potential explanation for the widespread existence of call provisions in corporate debt. This tax effect alone cannot explain the standard call feature because greater tax benefits may be derived for bonds callable at market prices. The equilibrium implications of the model allowing for tax arbitrage opportunities both at the corporate level and the individual level also are considered.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 20 , Issue 1 , March 1985 , pp. 95 - 105
Copyright
Copyright © School of Business Administration, University of Washington 1985

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