Taxes and Capital Structure
Purdue University - Krannert School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Virginia Tech - Pamplin College of Business
May 30, 2013
Journal of Financial and Quantitative Analysis (JFQA), Forthcoming
We use nearly 500 shifts in statutory corporate and personal income tax rates as natural experiments to assess the effect of corporate and personal taxes on capital structure. We find both corporate and personal income taxes to be significant determinants of capital structure. Based on ex-post observed summary statistics, across OECD countries, taxes appear to be as important as other traditional variables in explaining capital structure choices. The results are stronger among corporate tax payers, dividend payers, and companies that are more likely to have an individual as the marginal investor.
Number of Pages in PDF File: 42
Keywords: Taxes, Capital structure choices
JEL Classification: G3, G32, F3
Date posted: March 18, 2011 ; Last revised: September 11, 2013
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