Tax Incentives and Capital Structure Choice: Evidence from Germany

27 Pages Posted: 4 Sep 2012 Last revised: 28 Nov 2012

See all articles by Thomas Hartmann-Wendels

Thomas Hartmann-Wendels

University of Cologne - Department of Banking

Ingrid Stein

Deutsche Bundesbank; European Central Bank (ECB)

Alwin Stöter

University of Cologne - Department of Banking

Multiple version iconThere are 2 versions of this paper

Date Written: November 28, 2012

Abstract

This paper provides new evidence that taxes affect capital structure choice, using a unique and comprehensive panel data set which covers 86,173 German non-financial firms over the years 1973-2008. Following the Graham methodology to simulate marginal tax rates, we find a statistically and economically significant positive relationship between the marginal tax benefit of debt (net and gross of investor taxes) and the debt ratio. A 10% increase in the net (gross) marginal tax benefit of debt causes a 1.5% (1.6%) increase in the debt ratio, ceteris paribus. The results are robust to various specifications like using changes in debt or debt to capital ratios. A significantly positive effect of taxes on the debt ratio can also be identified in a partial adjustment model.

Keywords: debt, capital structure, marginal tax rate, corporate taxes, personal taxes

JEL Classification: G32, H20

Suggested Citation

Hartmann-Wendels, Thomas and Stein, Ingrid and Stöter, Alwin, Tax Incentives and Capital Structure Choice: Evidence from Germany (November 28, 2012). Available at SSRN: https://ssrn.com/abstract=2140896 or http://dx.doi.org/10.2139/ssrn.2140896

Thomas Hartmann-Wendels

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
D-50923 Cologne
Germany

Ingrid Stein

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Alwin Stöter (Contact Author)

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
187
Abstract Views
1,846
Rank
173,836
PlumX Metrics