Document Type
Article
Publication Date
2003
DOI
https://doi.org/10.17310/ntj.2003.1S.03
Abstract
As financial engineering becomes more sophisticated, taxing income from capital becomes increasingly difficult. We offer the first empirical study of a high profile strategy known as "taxfree hedging," which offers economic benefits of a sale without tnggering tax. We explore nontax costs that taxpayers face when hedging by issuing so-called "DECS," "PHONES," and other publicly-traded exchangeable securities. Focusing on 61 transactions between 1993 and 2001, we shed light on why taxpayers might prefer to hedge through private "over-the-counter" transactions: An offering of exchangeable securities is announced in advance and implemented all at once, triggering an almost 4 percent decline in the underlying stock price before the hedge is implemented.
Disciplines
Banking and Finance Law | Law | Securities Law | Tax Law
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License
Recommended Citation
William M. Gentry & David M. Schizer,
Frictions and Tax-Motivated Hedging: An Empirical Exploration of Publicly-Traded Exchangeable Securities,
56
Nat'l Tax J.
167
(2003).
Available at:
https://scholarship.law.columbia.edu/faculty_scholarship/2487
Comments
© 2003 by The University of Chicago.