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Taxation and capital structure : evidence from a transition economy

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  • Klapper, Leora
  • Tzioumis, Konstantinos

Abstract

The authors examine the effects of taxation on financing policy using the corporate tax reform in 2001 in Croatia as a natural experiment. Since the extant literature on tax effects on capital structure studies listed firms in developed countries, it is worth investigating whether the same results apply to privately-held, small and medium size firms in transition economies. The findings provide significant evidence that lower taxes have affected the capital structure of Croatian firms, resulting in increased equity levels and decreased long-term debt levels. The authors also find that smaller and more profitable firms weremore likely to reduce their debt levels. These findings are consistent with the trade-off theory of capital structure, which suggests that lower taxes decrease the incentive to hold debt due to decreasing interest tax deductibility.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 4753.

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Date of creation: 01 Oct 2008
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Handle: RePEc:wbk:wbrwps:4753

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Keywords: Debt Markets; Taxation&Subsidies; Emerging Markets; Banks&Banking Reform; Access to Finance;

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References

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Citations

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Cited by:
  1. George Pagoulatos & Nikolaos Zahariadis, 2011. "Politics, labor, regulation, and performance: lessons from the privatization of OTE," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 33827, London School of Economics and Political Science, LSE Library.
  2. Theodore Pelagidis, 2010. "The Greek Paradox of Falling Competitiveness and Weak Institutions in a High GDP Growth Rate Context (1995-2008)," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 38, Hellenic Observatory, LSE.
  3. George Kazamias, 2010. "From Pragmatism to Idealism to Failure: Britain in the Cyprus crisis of 1974," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 42, Hellenic Observatory, LSE.
  4. Nicholas Apergis, 2011. "Characteristics of inflation in Greece: Mean Spillover Effects among CPI Components," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 43, Hellenic Observatory, LSE.
  5. 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, Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 233(2), pages 188-205, March.
  6. Stelios Karagiannis & Yannis Panagopoulos & Prodromos Vlamis, 2010. "Symmetric or asymmetric interest rate adjustments? Evidence from Greece, Bulgaria and Slovenia," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 29168, London School of Economics and Political Science, LSE Library.
  7. George Pagoulatos & Nikolaos Zahariadis, 2011. "Politics, Labor, Regulation, and Performance: lessons from the privatization of OTE," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 46, Hellenic Observatory, LSE.
  8. Vassilis Monastiriotis & Jacob A. Jordaan, 2011. "Regional Distribution and Spatial Impact of FDI in Greece: evidence from firm-level data," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 44, Hellenic Observatory, LSE.
  9. Matthias Stöckl & Hannes Winner, . "Capital Structure and Corporate Taxation. Empirical Evidence from European Panel Data," WIFO Working Papers, WIFO 422, WIFO.
  10. Horen Voskeritsian & Andreas Kornelakis, 2011. "Institutional Change in Greek Industrial Relations in an Era of Fiscal Crisis," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 52, Hellenic Observatory, LSE.
  11. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(8), pages 2850-2866.
  12. Christos Lyrintzis, 2011. "Greek politics in the era of economic crisis: reassessing causes and effects," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 33826, London School of Economics and Political Science, LSE Library.
  13. Christos Lyrintzis, 2011. "Greek Politics in the Era of Economic Crisis: Reassessing Causes and Effects," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 45, Hellenic Observatory, LSE.
  14. Spyros Kosmidis, 2013. "Government constraints and economic voting in Greece," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 50259, London School of Economics and Political Science, LSE Library.
  15. Christos Dimas, 2010. "Privatization in the Name of ‘Europe’: analyzing the telecoms privatization in Greece from a ‘discursive institutionalist’ perspective," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 41, Hellenic Observatory, LSE.
  16. Christos Dimas, 2010. "Privatization in the name of ‘Europe’: analyzing the telecoms privatization in Greece from a ‘discursive institutionalist’ perspective," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 31089, London School of Economics and Political Science, LSE Library.
  17. Spyros Kosmidis, 2013. "Government Constraints and Economic Voting in Greece," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 70, Hellenic Observatory, LSE.

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