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Do Taxes Affect Corporate Financing Decisions?

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  • MacKie-Mason, Jeffrey K

Abstract

This paper provides clear evidence of substantial tax effects on the choice between issuing debt or equity; most studies fail to find significant effects. The relationship between tax shields and debt policy is clarified. Other papers miss the fact that most tax shields have a negligible effect on the marginal tax rate for most firms. New predictions are strongly supported by an empirical analysis; the method is to study incremental financing decisions using discrete choice analysis. Previous researchers examined debt/equity ratios, but tests based on incremental decisions should have greater power. Copyright 1990 by American Finance Association.

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  • MacKie-Mason, Jeffrey K, 1990. "Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-1493, December.
  • Handle: RePEc:bla:jfinan:v:45:y:1990:i:5:p:1471-93
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