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Capital Structure, Corporate Taxation and Firm Age

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  • Michael Pfaffermayr

    ()

  • Matthias St?ckl

    ()

  • Hannes Winner

    ()

Abstract

This paper analyzes the relationship between capital structure, corporate taxation and firm age. We adapt a standard model of optimal capital structure choice under corporate taxation, focusing on the financing and investment decisions a young firm is typically faced with. Our model allows to derive testable hypotheses about the relationship between corporate taxation, a firm's age and its debt to asset ratio. To test these hypotheses empirically, we use a cross-section of 405,000 firms from 35 European countries and 126 NACE 3-digit industries. In line with previous research, we find that a firm's debt ratio increases with the corporate tax rate. Further, we observe that older firms exhibit smaller debt ratios than their younger counterparts. Finally, consistent with our theoretical expectation, we find a positive interaction effect between corporate taxation and firm age, indicating that the impact of corporate taxation on debt is increasing over a firm's life-time.

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Bibliographic Info

Paper provided by Faculty of Economics and Statistics, University of Innsbruck in its series Working Papers with number 2008-09.

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Length: 35
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Handle: RePEc:inn:wpaper:2008-09

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Keywords: Corporate taxation; Capital structure; Firm age;

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References

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Citations

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Cited by:
  1. Muhammad Mahmud & Gobind M. Herani & Prof. A. W. Rajar, 2009. "Economic Factors Influencing Corporate Capital Structure in Three Asian Countries: Evidence from Japan, Malaysia and Pakistan," Indus Journal of Management & Social Science (IJMSS), Department of Business Administration, vol. 3(1), pages 9-17, June.
  2. 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.
  3. 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.
  4. Antonio De Socio & Valentina Nigro, 2012. "Does corporate taxation affect cross-country firm leverage?," Temi di discussione (Economic working papers) 889, Bank of Italy, Economic Research and International Relations Area.
  5. Matthias Stöckl & Hannes Winner, . "Capital Structure and Corporate Taxation. Empirical Evidence from European Panel Data," WIFO Working Papers 422, WIFO.

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