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Taxes and Corporate Debt Policy in Canada: An Empirical Investigation

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  • Pauline M. Shum

Abstract

This paper explores the implications of asymmetric corporate taxes for firms' debt policy. The focus is on the effects of two dynamic tax provisions, loss carry-forward and loss carry-back, on net debt issues. An effective tax variable is first estimated using a Tobit framework, accounting for the fact that firms' losses for tax purposes are censored. This effective tax variable and other explanatory factors are employed to explain net debt issues. Heteroskedasticity caused by the 'firm size effect' is also corrected. Using a panel of 128 firms between 1979 and 1989, this paper finds that corporate taxes have significant effects on firms' debt policy.

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Bibliographic Info

Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 29 (1996)
Issue (Month): 3 (August)
Pages: 556-72

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Handle: RePEc:cje:issued:v:29:y:1996:i:3:p:556-72

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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Citations

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Cited by:
  1. Michele Bernasconi & Anna Marenzi & Laura Pagani, 2005. "Corporate Financing Decisions and Non-Debt Tax Shields: Evidence from Italian Experiences in the 1990s," International Tax and Public Finance, Springer, vol. 12(6), pages 741-773, November.
  2. Zyblock, Miles, 1997. "L'effet de levier financier des entreprises : une comparaison entre le Canada et les E.-U., 1961-1996," Direction des etudes analytiques : documents de recherche 1997111f, Statistics Canada, Direction des etudes analytiques.
  3. Sinha, Pankaj & Bansal, Vishakha, 2013. "Capital structure puzzle: the interrelationship between leverage, taxes and other micro economic factors," MPRA Paper 49878, University Library of Munich, Germany, revised 17 Sep 2013.
  4. Zyblock, Miles, 1997. "Corporate Financial Leverage: A Canada - U.S. Comparison, 1961-1996," Analytical Studies Branch Research Paper Series 1997111e, Statistics Canada, Analytical Studies Branch.
  5. Bartholdy, Jan & Mateus, Cesário, 2006. "Debt and Taxes: Evidence from bank-financed unlisted firms," Finance Research Group Working Papers F-2006-02, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  6. Faig, Miquel & Shum, Pauline, 1999. "Irreversible investment and endogenous financing: An evaluation of the corporate tax effects," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 143-171, February.
  7. Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August.
  8. Julian Alworth & Giampaolo Arachi, 2001. "The Effect of Taxes on Corporate Financing Decisions: Evidence from a Panel of Italian Firms," International Tax and Public Finance, Springer, vol. 8(4), pages 353-376, August.

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