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Levelling the debt–equity playing field: Evidence from Belgium

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  • Meki, Muhammad

Abstract

I explore whether a Belgian policy that reduced the corporate tax bias towards debt finance was successful in lowering firm leverage. Using putatively exogenous time series variation in the cost of equity financing and a difference-in-differences strategy that includes similar firms from surrounding countries, I find that the policy did lead to increased equity ratios, with some evidence of a shift from short-term debt to long-term debt.

Suggested Citation

  • Meki, Muhammad, 2023. "Levelling the debt–equity playing field: Evidence from Belgium," European Economic Review, Elsevier, vol. 151(C).
    • Handle: RePEc:eee:eecrev:v:151:y:2023:i:c:s001429212200188x
    DOI: 10.1016/j.euroecorev.2022.104305
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    More about this item

    Keywords

    Capital structure; Corporate taxation; Debt bias; Equity financing; Small and medium-sized enterprises;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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