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How accurately can convertibles be classified as debt or equity for tax purposes? Evidence from Australia

Fenech, Jean-Pierre, Fang, Victor and Brown, Rob 2016, How accurately can convertibles be classified as debt or equity for tax purposes? Evidence from Australia, Review of law & economics, vol. 12, no. 1, pp. 153-164, doi: 10.1515/rle-2014-0028.

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Title How accurately can convertibles be classified as debt or equity for tax purposes? Evidence from Australia
Author(s) Fenech, Jean-Pierre
Fang, Victor
Brown, Rob
Journal name Review of law & economics
Volume number 12
Issue number 1
Start page 153
End page 164
Total pages 12
Publisher Walter de Gruyter GmbH
Place of publication Berlin, Germany
Publication date 2016-03
ISSN 2194-6000
1555-5879
Keyword(s) tax classification
convertible securities
misclassification
Summary The New Business Tax System (Debt and Equity) Act established a set ofcriteria by which convertible securities could be classified as “debt-like” or “equity-like” for tax purposes. Using data on 256 convertible issues made in Australia between 2001 and 2012, we show that there is a strong relation between, on the one hand, a convertible’s ex ante classification determined at issuance using the tax criteria and, on the other hand, its ex post classification based on the conversion premium at maturity. We conclude that the criteria have been an efficient means of classifying convertibles. We also find an industry effect where debt-like convertibles are more likely to be associated with the resources, metals and mining firms, whilst equity-like are mainly issued by the finance sector. This finding is consistent with the solution to a finance-sequencing problem in the former case, and the impact of capital adequacy regulation in the latter.
Language eng
DOI 10.1515/rle-2014-0028
Field of Research 150107 Taxation Accounting
1402 Applied Economics
1801 Law
Socio Economic Objective 900101 Finance Services
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2016, Walter de Gruyter GmbH
Free to Read? No
Free to Read Start Date 2017-04-01
Persistent URL http://hdl.handle.net/10536/DRO/DU:30083245

Document type: Journal Article
Collection: Department of Finance
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