Corporate Finance and Taxes: A Review

ferential returns, the relatively favorable treatment of interest expenditures leads to a preference for debt financing by firms. In terms of the personal income tax, the taxation of capital gains under the new tax law is deferred until realization. In the absence of either desirable distributional properties of dividend payments that are not replicable on personal account 28 or costless tax shelters 46, investors will prefer that dividend payments are minimized unless the returns are commensurately higher on high dividend paying