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| A Note on Taxes and the
Capital Structure of Partnerships, REITs, and Related Entities Author: James R. Hamill Start Page: 279 Abstract: Jaffe (1991) shows
that the value of partnerships and REITs is generally invariant to leverage, although
certain tax law provisions can result in an inverse relationship between value and
leverage. This paper extends Jaffe's analysis to consider recourse and nonrecourse
partnership debt, and special allocations of tax items financed by borrowings. It is shown
that the relationship between value and leverage for S Corporations is similar to REITs
with one added situation where value is inversely related to leverage. Finally,
transaction costs can allow for a positive relationship between partnership leverage and
value, a situation not addressed by Jaffe. |
