Tax incentives and capital structure choice: Evidence from Germany
AbstractThis paper provides new evidence that taxes affect capital structure choice, using a unique and comprehensive panel data set which covers 86,173 German non-financial firms over the years 1973-2008. Following the Graham methodology to simulate marginal tax rates, we find a statistically and economically significant positive relationship between the marginal tax benefit of debt (net and gross of investor taxes) and the debt ratio. A 10% increase in the net (gross) marginal tax benefit of debt causes a 1.5% (1.6%) increase in the debt ratio, ceteris paribus. The results are robust to various specifications like using changes in debt or debt to capital ratios. A significantly positive effect of taxes on the debt ratio can also be identified in a partial adjustment model. --
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Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 18/2012.
Date of creation: 2012
Date of revision:
debt; capital structure; marginal tax rate; corporate taxes; personal taxes;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-10-20 (Accounting & Auditing)
- NEP-ALL-2012-10-20 (All new papers)
- NEP-EUR-2012-10-20 (Microeconomic European Issues)
- NEP-PBE-2012-10-20 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Antoniou, Antonios & Guney, Yilmaz & Paudyal, Krishna, 2008. "The Determinants of Capital Structure: Capital Market-Oriented versus Bank-Oriented Institutions," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 43(01), pages 59-92, March.
- Amihud, Yakov & Murgia, Maurizio, 1997. " Dividends, Taxes, and Signaling: Evidence from Germany," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 397-408, March.
- Edward I. Altman, 1968. "Financial Ratios, Discriminant Analysis And The Prediction Of Corporate Bankruptcy," Journal of Finance, American Finance Association, American Finance Association, vol. 23(4), pages 589-609, 09.
- Thomas Hemmelgarn & Daniel Teichmann, 2013. "Tax Reforms and the Capital Structure of Banks," Taxation Papers, Directorate General Taxation and Customs Union, European Commission 37, Directorate General Taxation and Customs Union, European Commission.
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