Taxes and Capital Structure
42 Pages Posted: 18 Mar 2011 Last revised: 27 Oct 2015
Date Written: May 30, 2013
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
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