Showing papers on "Financial risk published in 1981"

Some Additional Results on Investment, Risk Taking, and Full Loss Offset Corporate Taxation with Interest Deductibility

Abstract: It is argued that a full loss offset corporate tax with interest deductibility may reduce risk taking in that entrepreneurs might decrease the amount of investment made in risky projects with higher corporate tax rates. Unlike previous results in the literature, production functions with decreasing returns to scale and the possibility of equity financing of capital investment are allowed. A corporate tax that falls in part on the returns of equity owners or entrepreneurs can, under certain conditions, reduce risk taking. If the government taxes only risk, then a corporate tax with a full loss offset can encourage investment in risky projects.

Technical risk as a cost factor in coal liquefaction: some financial considerations

Abstract: The significant gap between what is technologically available to thrust products from coal liquefaction into their place as replacement for petroleum products and what is economically available is attributed to the efficiencies, capital costs, and the financial risks of such coal liquefaction systems. Three considerations are addressed here in order to show the influence of the risk related economical issue on coal liquefaction costs and market potential. These are: (1) a review of previous cost estimating practices, (2) an evaluation of the US investment practices related to innovative processes, and (3) the influence of those factors on the cost of coal liquids. It is concluded that substantial fuel cost savings ($10/bbl or $1-2/10/sup 6/ Btu) are available from corporation investment experience in coal liquefaction facilities, but such savings can be achieved only when investors have advanced sufficiently to reduce their perceptions of liquefaction risk and uncertainty. (BLM)

Financing Capital Formation in the 1980s: Issues for Public Policy

Abstract: Three specific aspects of the corporate financing decision - internal versus external funds, equity versus debt within the external component, and features of the debt including especially maturity - present opportunities (and pitfalls) for public policy for affecting U.S. capital formation. First, by reducing the government's dissaving and hence its claims on the economy's financial resources, policy can make credit market funds available for corporations to finance their investment externally, thereby both stimulating the overall amount of capital formation and also taking advantage of the allocative efficiency of the competitive market mechanism to achieve a productive composition of that capital formation. At the same time, by using the tax system to augment the rate of return on corporate-sector assets, policy can also enable corporations better to compete for such funds once they are available. Second, by eliminating or even reversing the current tax discrimination in favor of debt, policy can encourage corporations to rely at least in part on equities in their external financing , thereby reducing the economy 's aggregate-level financial risk. Third, by neutralizing or even reversing the current emphasis on long- term securities in managing the federal government's own debt, policy can encourage corporations to issue long- instead of short-term debt instruments, thereby further reducing aggregate-level financial risk. Along the same lines, policy can also play a role in pioneering markets for new financial instruments, like bonds providing protection of the investor's purchasing power, that private borrowers can then use to finance private capital formation.