The Effect of Expected Effective Corporate Tax Rates on Incremental Financing Decisions
AbstractThis paper uses U.S. panel data to estimate the effect of expected effective corporate tax rates on the amount of debt issued by firms. The paper directly estimates expected corporate tax rates using rational expectations. The estimated measures of expected effective tax rates of firms are related to a continuous measure of incremental debt financing. The paper finds that expected effective tax rates are significantly and positively related to a higher level of debt financing. Simulations suggest that debt issues would double if firms were unable to shield profits and actually faced the statutory tax rate.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.
Volume (Year): 44 (1997)
Issue (Month): 4 (December)
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Web page: http://www.palgrave-journals.com/
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
Other versions of this item:
- Reint Gropp, 1997. "The Effect of Expected Effective Corporate Tax Rates on Incremental Financing Decisions," IMF Working Papers 97/46, International Monetary Fund.
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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- Gordon, Roger H. & Lee, Young, 2001.
"Do taxes affect corporate debt policy? Evidence from U.S. corporate tax return data,"
Journal of Public Economics,
Elsevier, vol. 82(2), pages 195-224, November.
- Roger H. Gordon & Young Lee, 1999. "Do Taxes Affect Corporate Debt Policy? Evidence from US Corporate Tax Return Data," NBER Working Papers 7433, National Bureau of Economic Research, Inc.
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