Debt and taxes: Evidence from the real estate industry
AbstractCompelling empirical evidence documenting a material effect of corporate taxes on leverage decisions is limited, in part because of difficulties in constructing an effective proxy for the firm's tax benefit of debt. We examine leverage decisions across taxable and nontaxable real estate firms—firms for which we can measure the relative tax benefit of debt with little error. The tax hypothesis implies that for firms with similar asset portfolios, taxable firms should have more debt than their nontaxable counterparts. Consistent with this, leverage ratios of taxable real estate firms are higher than their nontaxable counterparts, but the magnitude of this difference is at most one-half of that implied by studies that employ simulated marginal tax rates.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Corporate Finance.
Volume (Year): 20 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/jcorpfin
Capital structure; Taxes; Marginal tax rates; Organizational form;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General
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