TY - JOUR AU - Desai, Mihir AU - Gentry, William M TI - The Character and Determinants of Corporate Capital Gains JF - National Bureau of Economic Research Working Paper Series VL - No. 10153 PY - 2003 Y2 - December 2003 DO - 10.3386/w10153 UR - http://www.nber.org/papers/w10153 L1 - http://www.nber.org/papers/w10153.pdf N1 - Author contact info: Mihir A. Desai Graduate School of Business Administration Harvard University Soldiers Field Boston, MA 02163 Tel: 617/495-6693 Fax: 617/496-6592 E-Mail: mdesai@hbs.edu William M. Gentry Department of Economics Williams College Morey House Williamstown, MA 01267 Tel: 413-597-4257 Fax: 413-597-4045 E-Mail: William.M.Gentry@williams.edu M1 - published as Mihir A. Desai, William M. Gentry. "The Character and Determinants of Corporate Capital Gains," in James Poterba, editor, "Tax Policy and the Economy, Volume 18" MIT Press (2004) M2 - featured in NBER digest on 2011-11-18 AB - This paper analyzes how corporate capital gains taxes affect the capital gain realization decisions of firms. The paper outlines the tax treatment of corporate capital gains, the consequent incentives for firms with gains and losses, the efficiency consequences of these taxes in the context of other taxes and capital market distortions, and the response of firms to these incentives. Despite receiving limited attention, corporate capital gain realizations have averaged 30 percent of individual capital gain realizations over the last fifty years and have increased dramatically in importance over the last decade. By 1999, the ratio of net long-term capital gains to income subject to tax was 21 percent and was distributed across a variety of industries suggesting the importance of realization behavior to corporate financing decisions. Time-series analysis of aggregate realization behavior demonstrates that corporate capital gains taxes impact realization behavior significantly. Similarly, an analysis of firm-level investment and property, plant, and equipment (PPE) disposal decisions and gain recognition behavior similarly suggests an important role for these taxes in determining when firms raise money by disposing of assets and realizing gains. ER -