Does the debt tax shield distort ownership efficiency?

Pehr Johan Norbäck, Lars Persson*, Joacim Tåg

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

5 Citations (Scopus)


The tax laws of most developed countries are debt biased since firms can deduct interest on debt but not on equity. This bias is known to distort investment decisions. However, less is known about how the debt tax shield affects the ownership of assets when bidders differ financial expertise and thus in optimal use of leverage. We show that the debt tax shield need not always distort ownership efficiency. Assets end up with the socially preferred owner when differences in financial and productive expertise between bidders is small and better financial expertise reduces expected bankruptcy costs.

Original languageEnglish
Peer-reviewed scientific journalInternational Review of Economics and Finance
Pages (from-to)299-310
Number of pages12
Publication statusPublished - 03.2018
MoE publication typeA1 Journal article - refereed


  • 511 Economics
  • Acquisitions
  • Capital gains tax
  • Corporate tax
  • LBOs
  • M&As
  • Ownership
  • Private equity
  • Tax shields


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