Capital Structure Choice and Company Taxation: A Meta-Study

48 Pages Posted: 13 Mar 2011

See all articles by Lars P. Feld

Lars P. Feld

Walter Eucken Institute; University of Freiburg - College of Economics and Behavioral Sciences; CESifo (Center for Economic Studies and Ifo Institute)

Jost H. Heckemeyer

University of Kiel - Faculty of Economics and Social Sciences; ZEW – Leibniz Centre for European Economic Research

Michael Overesch

Universität zu Köln

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2011

Abstract

This paper provides a comprehensive quantitative review of the empirical literature on the impact of taxation on corporate debt financing. Synthesizing the evidence from over 1,000 primary estimates extracted out of 46 studies, we find that this impact is indeed quite substantial. Our results suggest that, in particular, the tax rate proxy used for identification determines the outcome of primary analyses. More refined measures like the simulated marginal tax rate suggested by Graham (1996, 1999) avoid a significant downward bias in estimates for the debt response to tax. Moreover, we find that debt characteristics, the econometric specification, the set of control-variables, and publication selection in primary studies exert significant influence on estimated tax effects. Accounting for all potential misspecification biases by means of meta-regression analyses, we predict a marginal tax effect on the debt ratio of 0.3.

Keywords: Capital Structure, Corporate Income Tax, Meta-Analysis

JEL Classification: G30, H32, F23

Suggested Citation

Feld, Lars P. and Heckemeyer, Jost H. and Overesch, Michael, Capital Structure Choice and Company Taxation: A Meta-Study (March 1, 2011). Available at SSRN: https://ssrn.com/abstract=1783558 or http://dx.doi.org/10.2139/ssrn.1783558

Lars P. Feld

Walter Eucken Institute ( email )

Goethestrasse 10
Freiburg im Breisgau, Baden-Württemberg D-79100
Germany

University of Freiburg - College of Economics and Behavioral Sciences ( email )

Freiburg, D-79085
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Jost H. Heckemeyer (Contact Author)

University of Kiel - Faculty of Economics and Social Sciences ( email )

Kiel
Germany

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Michael Overesch

Universität zu Köln ( email )

Albertus-Magnus-Platz
WiSo-Gebäude
Cologne, 50923
Germany
0221/470-5605 (Phone)

HOME PAGE: http://www.steuer.uni-koeln.de/

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