Empirical Evaluation of Interest Barrier Effects

40 Pages Posted: 18 Jul 2012 Last revised: 21 Jul 2015

See all articles by Daniel Dreßler

Daniel Dreßler

ZEW – Leibniz Centre for European Economic Research

Uwe Scheuering

German Council of Economic Experts

Date Written: 2012

Abstract

This paper empirically estimates the effects of a new thin-capitalization rule on the financing behavior of German corporations employing a fixed effects difference-in-difference approach. We compare treatment and control groups separated by a hypothetical application of the new rule in three years before its introduction. Our analysis does not provide empirical evidence for a pure interest barrier effect. This indicates that the few affected firms were either unable to reduce their leverage or used exceptions. The observable trend towards less debt might stem from a general preference for lower debt ratios after the crisis or from the tax rate cut, which was introduced simultaneously.

Keywords: Capital Structure, Corporate Taxation, Interest Barrier, Empirical Analysis, Firm-Level Data

JEL Classification: F23, H25, H32

Suggested Citation

Dreßler, Daniel and Scheuering, Uwe, Empirical Evaluation of Interest Barrier Effects (2012). ZEW - Centre for European Economic Research Discussion Paper No. 12-046, Available at SSRN: https://ssrn.com/abstract=2112117 or http://dx.doi.org/10.2139/ssrn.2112117

Daniel Dreßler (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

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

Uwe Scheuering

German Council of Economic Experts ( email )

Federal Statistical Office
Gustav-Stresemann-Ring 11
Wiesbaden, Hessen 65180
Germany

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