Taxes and Horizontal Corporate Group (Keiretsu) Affiliation: Empirical Evidence from Japan

PACAP WP 9602

Posted: 10 Dec 1996

See all articles by Piman Limpaphayom

Piman Limpaphayom

Sasin GIBA of Chulalongkorn University

S. Ghon Rhee

University of Hawaii - Shidler College of Business; University of Hawaii - Department of Financial Economics and Institutions

Date Written: September 1996

Abstract

This paper investigates the effect of horizontal corporate group (keiretsu) affiliation on effective tax rates in Japan. After controlling for variables that affect corporate income taxes, we find that keiretsu firms have lower effective tax rates than independent firms. We attribute these findings to political power and the unique corporate governance mechanism of keiretsu groups. Furthermore, horizontal keiretsu groups are able to reduce tax liabilities to such a low level that the influence of taxes on the substitution between debt and non-debt tax shields is insignificant. For independent companies, however, corporate income tax remains an important determinant of the tax substitution effect.

JEL Classification: G32

Suggested Citation

Limpaphayom, Piman and Rhee, S. Ghon, Taxes and Horizontal Corporate Group (Keiretsu) Affiliation: Empirical Evidence from Japan (September 1996). PACAP WP 9602. Available at SSRN: https://ssrn.com/abstract=4494

Piman Limpaphayom (Contact Author)

Sasin GIBA of Chulalongkorn University ( email )

Chula 12, Phyathai Road
Bangkok, 10330
Thailand
662 2184058 (Phone)
662 2153797 (Fax)

S. Ghon Rhee

University of Hawaii - Shidler College of Business ( email )

2404 Maile Way
C-304, FEI/CBA
Honolulu, HI 96822
United States

University of Hawaii - Department of Financial Economics and Institutions ( email )

United States

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