---
_id: '5014'
abstract:
- lang: eng
  text: This paper studies the impact of personal and corporate income taxation on
    capital charge rates in a delegation setting with a risk-averse manager. If the
    investment level influences the riskiness of the investment project, the capital
    charge rate deviates from the firm's cost of capital and depends crucially on
    the manager's personal income tax rate. Contradicting conventional wisdom, we
    find that a higher personal income tax rate induces higher investment expenditures
    and, surprisingly, increases the capital charge rate. The countervailing effect
    that a higher capital charge rate induces higher and not lower investment expenditures
    persists for pre-tax and after-tax performance measures as well as when the tax
    deductibility of managerial compensation is limited. Corporate income tax causes
    a similar effect only in the case of limited tax deductibility of compensation.
    Our insights remain valid regardless of the financing structure and the risk attitude
    of the investors.
author:
- first_name: Thomas
  full_name: Bauer, Thomas
  last_name: Bauer
- first_name: Thomas
  full_name: Kourouxous, Thomas
  id: '66936'
  last_name: Kourouxous
citation:
  ama: Bauer T, Kourouxous T. Capital Charge Rates, Investment Incentives and Taxation.
    <i>European Accounting Review</i>. 2017;26(3):419-440. doi:<a href="https://doi.org/10.1080/09638180.2016.1169938">10.1080/09638180.2016.1169938</a>
  apa: Bauer, T., &#38; Kourouxous, T. (2017). Capital Charge Rates, Investment Incentives
    and Taxation. <i>European Accounting Review</i>, <i>26</i>(3), 419–440. <a href="https://doi.org/10.1080/09638180.2016.1169938">https://doi.org/10.1080/09638180.2016.1169938</a>
  bibtex: '@article{Bauer_Kourouxous_2017, title={Capital Charge Rates, Investment
    Incentives and Taxation}, volume={26}, DOI={<a href="https://doi.org/10.1080/09638180.2016.1169938">10.1080/09638180.2016.1169938</a>},
    number={3}, journal={European Accounting Review}, publisher={Informa UK Limited},
    author={Bauer, Thomas and Kourouxous, Thomas}, year={2017}, pages={419–440} }'
  chicago: 'Bauer, Thomas, and Thomas Kourouxous. “Capital Charge Rates, Investment
    Incentives and Taxation.” <i>European Accounting Review</i> 26, no. 3 (2017):
    419–40. <a href="https://doi.org/10.1080/09638180.2016.1169938">https://doi.org/10.1080/09638180.2016.1169938</a>.'
  ieee: 'T. Bauer and T. Kourouxous, “Capital Charge Rates, Investment Incentives
    and Taxation,” <i>European Accounting Review</i>, vol. 26, no. 3, pp. 419–440,
    2017, doi: <a href="https://doi.org/10.1080/09638180.2016.1169938">10.1080/09638180.2016.1169938</a>.'
  mla: Bauer, Thomas, and Thomas Kourouxous. “Capital Charge Rates, Investment Incentives
    and Taxation.” <i>European Accounting Review</i>, vol. 26, no. 3, Informa UK Limited,
    2017, pp. 419–40, doi:<a href="https://doi.org/10.1080/09638180.2016.1169938">10.1080/09638180.2016.1169938</a>.
  short: T. Bauer, T. Kourouxous, European Accounting Review 26 (2017) 419–440.
date_created: 2018-10-30T12:44:44Z
date_updated: 2026-04-09T09:11:35Z
department:
- _id: '187'
- _id: '635'
doi: 10.1080/09638180.2016.1169938
intvolume: '        26'
issue: '3'
language:
- iso: eng
page: 419-440
publication: European Accounting Review
publication_identifier:
  issn:
  - 0963-8180
  - 1468-4497
publication_status: published
publisher: Informa UK Limited
quality_controlled: '1'
status: public
title: Capital Charge Rates, Investment Incentives and Taxation
type: journal_article
user_id: '96670'
volume: 26
year: '2017'
...