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Capital structure of firms when taxes are removed

Author

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  • Bader Alhashel

Abstract

Purpose - – The purpose of this paper is to further the understanding of the non-tax benefits of debt. Design/methodology/approach - – This paper analyzes the capital structure of firms when taxes are removed by analyzing firms in an emerging market, Kuwait, where personal and corporate taxation does not exist. Findings - – The leverage of firms in markets with no taxes are affected by the same leverage factors that affect firms where taxes are present. Non-tax benefits are economically significant and are almost 16 percent of firm value for the average leveraged firm. Practical implications - – Given such a finding and the positive effect of debt on firm value, there should be policies to facilitate bank lending and more efficient access to credit for firms. Originality/value - – The paper provides an estimate of the size of the non-tax benefits of debt.

Suggested Citation

  • Bader Alhashel, 2015. "Capital structure of firms when taxes are removed," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 31(1), pages 51-63, May.
    • Handle: RePEc:eme:jeaspp:v:31:y:2015:i:1:p:51-63
    DOI: 10.1108/JEAS-10-2013-0040
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    Citations

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    Cited by:

    1. Ibrahim Yousef & Hanada Almoumani & Ihssan Samara, 2020. "The Impact of Internationalization of the Boardroom on Capital Structure," JRFM, MDPI, vol. 13(12), pages 1-15, December.
    2. Zaman, Qamar Uz & Hassan, M. Kabir & Akhter, Waheed & Meraj, M.A., 2018. "From interest tax shield to dividend tax shield: A corporate financing policy for equitable and sustainable wealth creation," Pacific-Basin Finance Journal, Elsevier, vol. 52(C), pages 144-162.

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