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Taxes and Capital Structure

Mara Faccio

Purdue University - Krannert School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Jin Xu

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

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Date posted: March 18, 2011 ; Last revised: September 11, 2013

Suggested Citation

Faccio, Mara and Xu, Jin, Taxes and Capital Structure (May 30, 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: http://ssrn.com/abstract=1781158 or http://dx.doi.org/10.2139/ssrn.1781158

Contact Information

Mara Faccio (Contact Author)
Purdue University - Krannert School of Management ( email )
1310 Krannert Building
West Lafayette, IN 47907-1310
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
B-1050 Brussels
HOME PAGE: http://www.ecgi.org
Jin Xu
Virginia Tech - Pamplin College of Business ( email )
Department of Finance
880 West Campus Dr
Blacksburg, VA 24061
United States
HOME PAGE: http://www.finance.pamplin.vt.edu/faculty/jx/index.html
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