Geared Equity Investments: Tax Arbitrage Down Under

17 Pages Posted: 27 Feb 2002

See all articles by Charles J. Corrado

Charles J. Corrado

Deakin University - School of Accounting, Economics & Finance

Joe Cheung

Independent

Date Written: February 2002

Abstract

Geared Equity Investments (GEI) are an over-the-counter product offered by Macquarie Bank, Ltd. to high-income investors in Australia and New Zealand as a managed-risk investment in local shares with a significant tax-shield benefit. Upon issuance, a geared equity contract has three stakeholders: 1) the investor, 2) the issuer, and 3) the tax authority. We measure the value of these contracts to each stakeholder and assess their support for investor tax arbitrage. Our main conclusion is that the tax-shield benefit of a GEI contract supports investor tax arbitrage in certain cases, but that most of the tax shield flows through to the issuer and the credit markets.

Keywords: Option valuation, Tax shield, Geared equity investments

JEL Classification: C14, C15, G13

Suggested Citation

Corrado, Charles J. and Cheung, Joe, Geared Equity Investments: Tax Arbitrage Down Under (February 2002). Available at SSRN: https://ssrn.com/abstract=302067 or http://dx.doi.org/10.2139/ssrn.302067

Charles J. Corrado (Contact Author)

Deakin University - School of Accounting, Economics & Finance ( email )

221 Burwood Highway
Burwood, Victoria 3215
Australia
61492446214 (Phone)

Joe Cheung

Independent

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