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We impose the condition that there are at least 15 firms in an industry. We find
possible positive effects of corporate tax cuts in the food industry, pharmaceuticals,
land transportation, and warehousing by counting the percentage of firms whose VR
values are larger than 1.05. On the other hand, negative effects are observed among
the chemical and transportation industries. A value depreciation of more than 20 % is
observed for these two industries (22.22% and 21.95%, respectively). The metal
products industry is the next largest with 16.67 % of firms incurring a firm value loss
over 20%. Note that the firms in these industries are heavily equipped. Accordingly,
when the corporate tax rate cut
per se
is not as effective as shown here, as an
alternative governmental corporate tax cut policy, the policy-maker better arrange
investment tax credits, faster accelerated depreciation allowances and/or shortened
estimated life of fixed assets in order to argument policy effects like the case of the
U.S Tax Reform Act of 1986 and investment tax credits in 1962.
19
Other special tax
codes can also be used as simultaneous auxiliary devices.
Table 2.
Industry-wide Frequency Distribution of Intrrinsice Value Ration at the end of June
2009
Intrinsic Value is defined as
(V
at hypothetical tax rate of 35%)/
(
V
at the ongoing effective tax rate of 40.87%)
0.80<VR
0.85
0.85<VR
0.90
0.90<VR
0.95
0.95<VR
1.00
1.00<VR
1.05
1.05<VR
1.10
1.10<VR
1.15
1.15<VR
1.20
#Firms
VR
0.8
1.20<VR
Construction
35
8.57
0.00
0.00
0.00
0.00
0.00
11.43
48.57
8.57
22.86
Foods
66
1.52
0.00
0.00
1.52
0.00
0.00
22.73
60.61
7.58
6.06
Text iles&Ap p arels
44
9.09
0.00
4.55
4.55
11.36
0.00
11.36
20.45
18.18
20.45
Chemicals
18
22.22
0.00
5.56
22.22
0.00
0.00
0.00
5.56
5.56
38.89
Pharmaceut ical
115
1.74
0.00
0.00
0.00
0.00
0.00
15.65
57.39
13.91
11.30
Glass&Ceramics
Products
32
6.25
0.00
0.00
0.00
3.13
0.00
9.38
40.63
28.13
12.50
Iron&Steel
16
0.00
0.00
0.00
6.25
0.00
0.00
6.25
31.25
12.50
43.75
M etal Products
36
16.67
0.00
0.00
0.00
0.00
0.00
5.56
36.11
19.44
22.22
M achinery
44
2.27
0.00
0.00
0.00
2.27
0.00
0.00
40.91
29.55
25.00
Elect ric Ap p liances
25
4.00
0.00
0.00
4.00
0.00
0.00
0.00
48.00
20.00
24.00
Transportation
Equip ment
41
21.95
0.00
12.20
0.00
2.44
0.00
2.44
26.83
17.07
17.07
Precision
Instruments
144
4.86
1.39
0.69
0.00
0.69
0.00
8.33
55.56
18.75
9.72
Other Products
159
8.18
0.63
1.26
4.40
1.89
0.00
9.43
33.96
18.87
21.38
Elect ric Power&Gas
79
1.27
0.00
0.00
0.00
2.53
0.00
17.72
69.62
2.53
6.33
Land
Transportation
30
0.00
0.00
0.00
0.00
3.33
0.00
10.00
60.00
6.67
20.00
Warehousing
62
9.68
0.00
0.00
1.61
1.61
0.00
9.68
48.39
12.90
16.13
Wholesale Trade
49
0.00
2.04
6.12
2.04
6.12
0.00
53.06
14.29
4.08
12.24
Retail Trade
20
5.00
0.00
0.00
0.00
5.00
0.00
65.00
5.00
20.00
0.00
Services
26
11.54
0.00
0.00
3.85
3.85
0.00
0.00
42.31
23.08
15.38
19
Note Samuelson (1964) is the first study which theoretically analyzed the effects of tax
depreciation methods on firm value as well as social equity between large and small firms.
Note the higher accelerated depreciation rate and smaller salvage values were permitted for
tax purposes since 2007 in Japan.