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- In the main text, we define z without incorporating the tax rates, in order to isolate the direct effect of bonus. Here, we define z with tax rates because it matches Hayashi (1982)’s notation and highlights the general dependence of the term on future tax rates. This formula is not exactly correct because additional periods will lead to additional accumulated losses for subsequent deductions. The firm will deduct these at an accelerated rate relative to the schedule in zt (1). This formulation simplifies the algebra and biases our empirical findings toward the neoclassical benchmark.
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- Internet Appendix A Investment with Adjustment Costs and a Borrowing Constraint We develop an infinite horizon, non-stochastic investment model, deriving the testable hypotheses in Section 1 and the empirical moments for calibration in Section 4.3. The model nests the standard neoclassical investment model with adjustment costs (Hayashi, 1982), a model with credit constraints and a model with managerial myopia.
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