The Impact of Personal and Corporate Taxation on Capital Structure Choices
AbstractThis paper empirically analyzes whether both personal and corporate taxation have an influence on companies´ capital structure decisions. We investigate the effect of the difference in taxation of debt and equity financing on capital structure. Our empirical results, based on a panel of European firm-level data, suggest that a higher tax benefit of debt has the expected significant positive effect on a company´s financial leverage. We find evidence that the capital structures of smaller companies respond more heavily to changes in the tax benefit of debt. Additional analysis confirms that, in particular, variation in capital income tax rates at the shareholder level implicates significant capital structure adjustments. Moreover, we find substitutive relationships between non-debt tax shields and the effect of the corporate tax rate on capital structure.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Volume (Year): 66 (2010)
Issue (Month): 3 (September)
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Web page: http://www.mohr.de/fa
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
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- Matthias Stöckl & Hannes Winner, 2013. "Koerperschaftsbesteuerung und Unternehmensverschuldung: Evidenz aus einem Europaeischen Firmenpanel," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 233(2), pages 188-205, March.
- Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013.
"Capital structure choice and company taxation: A meta-study,"
Journal of Banking & Finance,
Elsevier, vol. 37(8), pages 2850-2866.
- Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2011. "Capital structure choice and company taxation: A meta-study," ZEW Discussion Papers 11-075, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Lars P. Feld & Jost Henrich Heckemeyer & Michael Overesch, 2011. "Capital Structure Choice and Company Taxation: A Meta-Study," CESifo Working Paper Series 3400, CESifo Group Munich.
- Matthias Stöckl & Hannes Winner, . "Capital Structure and Corporate Taxation. Empirical Evidence from European Panel Data," WIFO Working Papers 422, WIFO.
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