Search results

To analyse the net present value (NPV) rule for corporate investments incorporating shareholder personal taxes, under the classical system of taxing corporate profits.

The after‐tax payoffs to shareholders are calculated, comparing immediate distribution as dividends of corporate funds available for investment with future after‐tax dividend distributions if corporate funds are invested.

Shareholders will disagree on the optimal corporate NPV rule. If, as in widely held public companies, corporate management are unaware of the marginal personal tax rate of shareholders, then the only rule which will accept investment projects that no shareholder would want the company to reject, is the rule which discounts after‐corporate‐tax cash flows at a before‐tax discount rate.

The analysis is based on the classical system of taxing corporate profits. A number of countries have adopted an integrated system of corporate taxation. The analysis may or may not extend to such alternative systems.

Simplifies the choice of NPV rules for corporate management, under a classical tax system.

The widely held view that after‐corporate‐tax discount rates should be used in discounting after‐corporate‐tax cash flows is shown to be inadequate.

The purpose of this paper is to consider how the federal crop insurance (FCI) program influences farm debt use, one of the key financial decisions made by farm operators.

Using data from the nationally representative Agricultural Resource Management Survey, the paper implements a propensity score matching model of the impact of FCI participation on various measures of farm business debt use. To account for the simultaneity of financial decisions, the paper further tests this relationship using a seemingly unrelated regression model.

FCI participation is associated with an increase in use of short-term farm debt, but not long-term debt, consistent with risk balancing behavior and current trends in the farm sector.

In addition to risk balancing, the results are also consistent with credit constraints or lender preferences. The paper cannot fully establish causality between crop insurance participation and short-term debt levels. Future research should address these limitations.

Agricultural lending standards are generally conservative and the farm sector as a whole currently has historically low leverage, which implies that an increase in debt use may not be a threat to the financial health of the farm sector.

The results indicate that the reduction in total risk facing the farm sector is significantly less than the decline in risk provided by FCI, which is an important consideration for policymakers.

This is the first paper to use an econometric model to analyze the relationship between FCI and farm debt use decisions. This paper can inform future research on the FCI program and farm financial decisions.