Does the miller model predict debt levels in New Zealand?

Abstract

One of the unsolved problems in finance is how do you explain structure Miller (1977) looked at cash flows that stakeholders receive from a corporation .After looking at the after tax cash flow streams to bond and stockholeders he discounted these cash flows to get the value of the firm .This value is equal to the value of an unlevered firmplus the tax shield from the debt.This variant of the tax shield (Miller) includes the personal tax rates for dividends,and ordinary income as well as the corporate tax rate .Several combinations of personal and corporate tax rates could drive the tax advantage of debt to zero or even make in negative.Since 1987 the tax shield for debt has been zero in New Zealand except for 1989and again starting in April of 2000. Like most other studies on tax effects the resukt are weakly supportive.