Do Personal Taxes Affect Corporate Financing Decisions?

55 Pages Posted: 1 Jul 1998

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 1998


The traditional view is that interest deductibility encourages firms to use debt financing; however, some argue that the personal tax disadvantage to interest offsets the corporate tax advantage. This paper investigates the degree to which personal taxes affect corporate financing decisions. In cross-sectional regressions that control for personal taxes, debt usage is positively correlated with tax rates in each year 1980-1994, with significant coefficients in almost every year. A specification that adjusts tax benefits for the personal tax penalty statistically dominates a specification that does not. The positive (negative) effect of corporate (personal) taxes on debt usage is distinctly identified.

JEL Classification: G31, G32, H24

Suggested Citation

Graham, John Robert, Do Personal Taxes Affect Corporate Financing Decisions? (April 1998). Available at SSRN: or

John Robert Graham (Contact Author)

Duke University ( email )

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National Bureau of Economic Research (NBER)

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