Taxes and Capital Structure
Purdue University - Krannert School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Purdue University - Krannert School of Management
December 31, 2012
We use a quasi-experimental setting to identify nearly 500 shifts in statutory corporate and personal income tax rates during 1981 to 2009. We exploit those tax changes to assess the effect of corporate and personal taxes on capital structure. We find taxes to be economically and statistically significant determinants of capital structure. Across OECD countries, taxes are 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. The effect of taxes also varies in sensible ways across countries. For example, tax changes have no effect on capital structure in countries with high tax evasion.
Number of Pages in PDF File: 55
Keywords: Taxes, Capital structure choices
JEL Classification: G3, G32, F3working papers series
Date posted: March 18, 2011 ; Last revised: March 10, 2013
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