Corporate Income Taxation, Leverage at Entry, and the Growth of Entrepreneurial Companies

CentER Discussion Paper Series No. 2018-055

53 Pages Posted: 9 Jan 2019 Last revised: 9 Aug 2019

See all articles by Marco Da Rin

Marco Da Rin

Tilburg University, Department of Finance; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Marina Di Giacomo

University of Torino - Department of Economics, Social Sciences, Applied Mathematics and Statistics

Alessandro Sembenelli

University of Turin - Department of Economics and Financial Sciences G. Prato

Date Written: August 08, 9

Abstract

We study whether corporate income taxation affects the long-term growth of newly incorporated companies through its effect on their choice of leverage at entry. We find that a decrease in corporate income taxation leads to a sizeable decrease in leverage at entry, and that the distribution of leverage at entry is persistent over several years. This effect on initial conditions has long-term implications: we document an inverted-U relationship between leverage at entry and long-term corporate growth, conditional on survival. These effects are economically sizeable and stronger in countries with better creditor rights and more transparent financial transactions.

Keywords: Corporate income taxation; Capital structure; Entrepreneurial finance; Corporate

JEL Classification: G32; H25; L25; L26

Suggested Citation

Da Rin, Marco and Di Giacomo, Marina and Sembenelli, Alessandro, Corporate Income Taxation, Leverage at Entry, and the Growth of Entrepreneurial Companies (August 08, 9). CentER Discussion Paper Series No. 2018-055. Available at SSRN: https://ssrn.com/abstract=3309572 or http://dx.doi.org/10.2139/ssrn.3309572

Marco Da Rin (Contact Author)

Tilburg University, Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Marina Di Giacomo

University of Torino - Department of Economics, Social Sciences, Applied Mathematics and Statistics ( email )

Corso Unione Sovietica 218 bis
Torino, 10134
Italy
+39 011 6706074 (Phone)
+39 011 6706062 (Fax)

HOME PAGE: http://www.unito.it/persone/madigiac

Alessandro Sembenelli

University of Turin - Department of Economics and Financial Sciences G. Prato ( email )

C. so Unione Sovietica, 218 Bis
Torino, 13820-4020
Italy
+39 011 670 6059 (Phone)
+39 011 670 6062 (Fax)

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