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 InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 97/46.
Date of creation: 01 Apr 1997
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Postal: International Monetary Fund, Washington, DC USA
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Other versions of this item:
- Reint E. Gropp, 1997. "The Effect of Expected Effective Corporate Tax Rates on Incremental Financing Decisions," IMF Staff Papers, Palgrave Macmillan, vol. 44(4), pages 485-509, December.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-16 (All new papers)
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- 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.
- 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.
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