Advanced Search
MyIDEAS: Login

Taxes and Capital Structure: Evidence from Firms' Response to the Tax Reform Act of 1986

Contents:

Author Info

  • Givoly, Dan, et al
Registered author(s):

    Abstract

    While the theoretical relation between taxes and capital structure has been extensively analyzed, the empirical evidence on this issue has thus far been inconclusive. One of the main difficulties confronting previous empirical studies of the cross-sectional relationship between taxes and leverage was the control of intervening variables. The Tax Reform Act of 1986 (TRA), which drastically changed the tax regime, provides a unique opportunity to assess the interaction between taxes and leverage decisions in a controlled environment. The authors test the relationship between leverage and certain tax-related variables for a large sample of companies in the years surrounding the enactment of TRA. The results support the tax-based theories of capital structure. The findings indicate that there exists a substitution effect between debt and nondebt tax shields, and that both corporate and personal tax rates affect leverage decisions. Coauthors are Dan Givoly, Aharon R. Ofer, and Oded Sarig. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.jstor.org/fcgi-bin/jstor/listjournal.fcg/08939454
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Society for Financial Studies in its journal Review of Financial Studies.

    Volume (Year): 5 (1992)
    Issue (Month): 2 ()
    Pages: 331-55

    as in new window
    Handle: RePEc:oup:rfinst:v:5:y:1992:i:2:p:331-55

    Contact details of provider:
    Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
    Fax: 919-677-1714
    Email:
    Web page: http://www.rfs.oupjournals.org/
    More information through EDIRC

    Order Information:
    Web: http://www4.oup.co.uk/revfin/subinfo/

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Leora Klapper & Konstantinos Tzioumis, 2008. "Taxation and Capital Structure: evidence from a transition economy," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 16, Hellenic Observatory, LSE.
    2. Ghosh, Aloke & Jain, Prem C., 2000. "Financial leverage changes associated with corporate mergers," Journal of Corporate Finance, Elsevier, vol. 6(4), pages 377-402, December.
    3. Frankfurter, George M. & Wood, Bob Jr., 2002. "Dividend policy theories and their empirical tests," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 111-138.
    4. Chay, J. B. & Marsden, Alastair, 1996. "Market reaction to the introduction of a foreign investor tax credit regime in New Zealand," Pacific-Basin Finance Journal, Elsevier, vol. 4(2-3), pages 129-152, July.
    5. Danielova, Anna & Sarkar, Sudipto, 2011. "The effect of leverage on the tax-cut versus investment-subsidy argument," Review of Financial Economics, Elsevier, vol. 20(4), pages 123-129.
    6. Reagle, Derrick, 2006. "Back on the balance sheet: The tax effects of contingent claims in commercial banking," Review of Financial Economics, Elsevier, vol. 15(1), pages 19-27.
    7. Graham, John R., 1996. "Proxies for the corporate marginal tax rate," Journal of Financial Economics, Elsevier, vol. 42(2), pages 187-221, October.
    8. Graham, John R., 1996. "Debt and the marginal tax rate," Journal of Financial Economics, Elsevier, vol. 41(1), pages 41-73, May.
    9. Chen, Jean J., 2004. "Determinants of capital structure of Chinese-listed companies," Journal of Business Research, Elsevier, vol. 57(12), pages 1341-1351, December.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:5:y:1992:i:2:p:331-55

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.