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An Implicit Clientele Test of the Relationship between Taxation and Capital Structure

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  • Paul Grier
  • Paul Strebel

Abstract

This paper presents a test for the existence of debt clienteles in which the latter are represented by progressive personal tax brackets. The test generates some evidence consistent with the implication of debt clientele theory that, over time, firms' debt ratios should vary with the relative tax incentives which their investors have to hold debt. Changes in the relative structure of taxes, however, at best only partially account for the time series behavior of debt ratios, especially in the case of high debt firms.

Suggested Citation

  • Paul Grier & Paul Strebel, 1980. "An Implicit Clientele Test of the Relationship between Taxation and Capital Structure," NBER Working Papers 0481, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:0481
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    References listed on IDEAS

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    1. Miller, Merton H. & Scholes, Myron S., 1978. "Dividends and taxes," Journal of Financial Economics, Elsevier, vol. 6(4), pages 333-364, December.
    2. Han Kim, E. & Lewellen, Wilbur G. & McConnell, John J., 1979. "Financial leverage clienteles : Theory and evidence," Journal of Financial Economics, Elsevier, vol. 7(1), pages 83-109, March.
    3. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
    4. Stiglitz, Joseph E., 1973. "Taxation, corporate financial policy, and the cost of capital," Journal of Public Economics, Elsevier, vol. 2(1), pages 1-34, February.
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