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Corporate Financing Decisions and Non-Debt Tax Shields: Evidence from Italian Experiences in the 1990s

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Author Info
Michele Bernasconi ()
Anna Marenzi ()
Laura Pagani ()

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Abstract

Between 1995 and 1999, Italy experienced three episodes of fiscal reform during which different categories of non-debt tax shields were introduced, including a classical investment tax credit, a system of dual income taxation, and an investment tax credit restricted to equity financed investments. Using the balance sheets of a large sample of Italian companies, we construct a data set which allows us to evaluate the impact of the different fiscal interventions. We apply MacKie-Mason's (1990) method to study incremental financing decisions using discrete choice analysis. The analysis shows that the measures introduced were successful in reducing the advantage of debt financing relative to equity financing. We relate the findings to the current literature on the determinants of capital structure. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s10797-005-2914-1
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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 12 (2005)
Issue (Month): 6 (November)
Pages: 741-773
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Handle: RePEc:kap:itaxpf:v:12:y:2005:i:6:p:741-773

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Web page: http://www.springerlink.com/link.asp?id=102915

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Related research
Keywords: non-debt tax shields; investment tax credits; dual income tax;

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  1. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  2. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October. [Downloadable!] (restricted)
  4. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June. [Downloadable!] (restricted)
  5. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March. [Downloadable!] (restricted)
  6. MacKie-Mason, Jeffrey K, 1990. " Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-93, December. [Downloadable!] (restricted)
    Other versions:
  7. 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. [Downloadable!] (restricted)
  8. Pauline M. Shum, 1996. "Taxes and Corporate Debt Policy in Canada: An Empirical Investigation," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 556-72, August. [Downloadable!] (restricted)
  9. Shyam-Sunder, Lakshmi & C. Myers, Stewart, 1999. "Testing static tradeoff against pecking order models of capital structure1," Journal of Financial Economics, Elsevier, vol. 51(2), pages 219-244, February. [Downloadable!] (restricted)
  10. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March. [Downloadable!] (restricted)
  11. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. " On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-78, July. [Downloadable!] (restricted)
  12. Marsh, Paul, 1982. " The Choice between Equity and Debt: An Empirical Study," Journal of Finance, American Finance Association, vol. 37(1), pages 121-44, March. [Downloadable!] (restricted)
  13. Boadway, Robin & Bruce, Neil, 1992. "Problems with integrating corporate and personal income taxes in an open economy," Journal of Public Economics, Elsevier, vol. 48(1), pages 39-66, June. [Downloadable!] (restricted)
    Other versions:
  14. Faini, R. & Galli, G. & Giannini, C., 1992. "Finance and Development : the Case of Southern Italy," Papers 170, Banca Italia - Servizio di Studi.
    Other versions:
  15. Massimo Bordignon & Silvia Giannini & Paolo Panteghini, 2001. "Reforming Business Taxation: Lessons from Italy?," International Tax and Public Finance, Springer, vol. 8(2), pages 191-210, March. [Downloadable!] (restricted)
  16. Mikael Apel & Jan Södersten, 1999. "Personal Taxation and Investment Incentives in a Small Open Economy," International Tax and Public Finance, Springer, vol. 6(1), pages 79-88, February. [Downloadable!] (restricted)
  17. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May. [Downloadable!] (restricted)
  18. Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August. [Downloadable!] (restricted)
  19. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November. [Downloadable!] (restricted)
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