Taxes and Capital Structure

Faccio, Mara; Xu, Jin

doi:10.2139/ssrn.1781158

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Taxes and Capital Structure

Journal of Financial and Quantitative Analysis (JFQA), 50(3), June 2015, pages 277-300

42 Pages Posted: 18 Mar 2011 Last revised: 27 Oct 2015

See all articles by Mara Faccio

Mara Faccio

Mitchell E. Daniels, Jr. School of Business, Purdue University; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Jin Xu

Virginia Tech - Pamplin College of Business

Date Written: May 30, 2013

Abstract

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.

Keywords: Taxes, Capital structure choices

JEL Classification: G3, G32, F3

Suggested Citation: Suggested Citation

Faccio, Mara and Xu, Jin, Taxes and Capital Structure (May 30, 2013). Journal of Financial and Quantitative Analysis (JFQA), 50(3), June 2015, pages 277-300, Available at SSRN: https://ssrn.com/abstract=1781158 or http://dx.doi.org/10.2139/ssrn.1781158