Capital Structure and Taxes in Europe

61 Pages Posted: 28 Mar 2017 Last revised: 20 Jun 2017

See all articles by Jonathan B. Cohn

Jonathan B. Cohn

University of Texas at Austin

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Garry J. Twite

University of Melbourne - Department of Finance; University of Melbourne - Faculty of Business and Economics; Financial Research Network (FIRN)

Date Written: June 15, 2017

Abstract

This paper studies the impact of taxes on capital structure in Europe. We find that leverage ratios vary with personal tax rates but issuance choices do not. We find no evidence that capital structure is sensitive to corporate tax rates and no evidence that leverage ratios respond to dividend tax rate changes that arise from a plausibly exogenous court ruling that forced several countries to abandon imputation tax systems. We do, however, find that firms reduce dividend payouts when the tax on dividends increases.

Keywords: capital structure, taxes, europe, payout policy

JEL Classification: G32, G35

Suggested Citation

Cohn, Jonathan B. and Titman, Sheridan and Twite, Garry J., Capital Structure and Taxes in Europe (June 15, 2017). Available at SSRN: https://ssrn.com/abstract=2941957 or http://dx.doi.org/10.2139/ssrn.2941957

Jonathan B. Cohn (Contact Author)

University of Texas at Austin ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-6827 (Phone)

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Garry J. Twite

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

University of Melbourne - Faculty of Business and Economics ( email )

Department of Finance
Melbourne, VIC 3010
Australia
+61 3 90356172 (Phone)

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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