TY  - JOUR
AU  - Auerbach,Alan J.
TI  - Wealth Maximization and the Cost of Capital
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 254
PY  - 1980
Y2  - April 1980
UR  - http://www.nber.org/papers/w0254
L1  - http://www.nber.org/papers/w0254.pdf
N1  - Author contact info:
Alan J. Auerbach
Department of Economics
530 Evans Hall, #3880
University of California, Berkeley
Berkeley, CA 94720-3880
Tel: 510/643-0711
Fax: 510/643-0413
E-Mail: auerbach@econ.berkeley.edu
AB  - In this paper we explore the issue of wealth maximization and the implied behavior of the firm, paying particular attention to the results discussed above and how they are affected by the existence of capital income taxes. Our results indicate that a tax structure similar to that in existence in the United States influences the cost of capital in a very different way than has been assumed previously and that the relative advantages of debt over equity as a method of finance, and capital gains over dividends as a vehicle for personal realization of corporate profits, may have been greatly overstated. These findings may help to explain certain aspects of corporate financial behavior that have seemed puzzling.
ER  -