TAXES AND THE REFUNDING OF DISCOUNT BONDS

Abstract

This paper examines the effect of the Bankruptcy Tax Act of 1980 on the decision to refund corporate bonds selling at a discount. Historically, the refunding of discount debt has appeared to be profitable on a discounted cash flow basis. This study demonstrates, however, that the tax effects of the Bankruptcy Tax Act of 1980 have eliminated effectively any potential gains from refunding discounted debt. © The Southern Finance Association and the Southwestern Finance Association

Publication Title

Journal of Financial Research

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