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An Empirical Study of the Impact of Corporate Taxation on the Debt Policy of Canadian Firms

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Author Info

  • Jan Bartholdy
  • Gordon R. Fisher
  • Jack Mintz

Abstract

This paper discusses the influence of Canadian corporate tax rates on the debt-asset ratios of Canadian firms, 1970-82. Five theoretical models are reviewed and used to construct a linear encompassing model of financial structure. Empirical evidence from Canadian firms from COMPUSTAT files supports the tax loss, bankruptcy cost, managerial incentive and adverse selection models and rejects the Miller model. The most novel and significant finding is that corporate tax rates have a strong, positive, and stable effect on debt-asset ratios.

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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 742.

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Length: 42 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:qed:wpaper:742

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Web page: http://qed.econ.queensu.ca/
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Related research

Keywords: enterprises ; taxes ; economic models ; empirical methods;

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Cited by:
  1. Zyblock, Miles, 1997. "Corporate Financial Leverage: A Canada - U.S. Comparison, 1961-1996," Analytical Studies Branch Research Paper Series 1997111e, Statistics Canada, Analytical Studies Branch.
  2. Vijay Jog & Jianmin Tang, 2001. "Tax Reforms, Debt Shifting and Tax Revenues: Multinational Corporations in Canada," International Tax and Public Finance, Springer, vol. 8(1), pages 5-25, January.
  3. Pierre-Pascal Gendron & Gordon Anderson & Jack M. Mintz, 2003. "Corporation Tax Asymmetries and Firm-Level Investment in Canada," International Tax Program Papers 0303, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
  4. Zyblock, Miles, 1997. "L'effet de levier financier des entreprises : une comparaison entre le Canada et les E.-U., 1961-1996," Direction des etudes analytiques : documents de recherche 1997111f, Statistics Canada, Direction des etudes analytiques.
  5. Bartholdy, Jan & Mateus, Cesário, 2006. "Debt and Taxes: Evidence from bank-financed unlisted firms," Finance Research Group Working Papers F-2006-02, University of Aarhus, Aarhus School of Business, Department of Business Studies.

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