Taxation and Capital Structure: Evidence from a Transition Economy
FinanzArchiv: Public Finance Analysis, Vol. 68(2), 2012.
35 Pages Posted: 27 Oct 2008 Last revised: 2 Jul 2013
There are 2 versions of this paper
Taxation and Capital Structure: Evidence from a Transition Economy
Taxation and Capital Structure: Evidence from a Transition Economy
Date Written: October 20, 2011
Abstract
We examine the effects of taxation on financing policy using the corporate tax reform in 2001 in Croatia as a quasi-natural experiment. Since the extant literature on tax effects on capital structure studies listed firms in developed countries, it is worth investigating whether the same results apply to privately-held small and medium enterprises in transition economies. The findings provide significant evidence that lower taxes have affected the capital structure of Croatian firms, resulting in increased equity levels. These findings are consistent with the trade-off theory of capital structure, which suggests that lower taxes increase the incentive to hold equity due to decreasing interest tax deductibility of debt.
Keywords: Capital structure, Taxation, Transition Economies
JEL Classification: G32, G38, K34
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
What Do We Know About Capital Structure? Some Evidence from International Data
By Raghuram G. Rajan and Luigi Zingales
-
The Theory and Practice of Corporate Finance: Evidence from the Field
By John R. Graham and Campbell R. Harvey
-
The Theory and Practice of Corporate Finance: The Data
By John R. Graham and Campbell R. Harvey
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Market Timing and Capital Structure
By Malcolm P. Baker and Jeffrey Wurgler
-
Testing Tradeoff and Pecking Order Predictions About Dividends and Debt
By Eugene F. Fama and Kenneth R. French
-
Testing Static Trade-Off Against Pecking Order Models of Capital Structure
-
Optimal Capital Structure Under Corporate and Personal Taxation
By Harry Deangelo and Ronald W. Masulis