The Impact of Personal and Corporate Taxation on Capital Structure Choices
This paper empirically analyzes whether both personal and corporate taxation have an influence on companies´ capital structure decisions. We investigate the effect of the difference in taxation of debt and equity financing on capital structure. Our empirical results, based on a panel of European firm-level data, suggest that a higher tax benefit of debt has the expected significant positive effect on a company´s financial leverage. We find evidence that the capital structures of smaller companies respond more heavily to changes in the tax benefit of debt. Additional analysis confirms that, in particular, variation in capital income tax rates at the shareholder level implicates significant capital structure adjustments. Moreover, we find substitutive relationships between non-debt tax shields and the effect of the corporate tax rate on capital structure.
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Volume (Year): 66 (2010)
Issue (Month): 3 (September)
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References listed on IDEAS
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.:
- Stefan Homburg, 2007. "Germany's Company Tax Reform Act of 2008," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(4), pages 591-612, December.
- Fernandez, Pablo, 2004.
"The value of tax shields is NOT equal to the present value of tax shields,"
Journal of Financial Economics,
Elsevier, vol. 73(1), pages 145-165, July.
- Fernández , Pablo, 2002. "The value of tax shields is not equal to the present value of tax shields," IESE Research Papers D/459, IESE Business School.
- Nijman, T.E. & Verbeek, M.J.C.M., 1992. "Testing for selectivity in panel data models," Other publications TiSEM 7ec34a6c-1d84-4052-971c-d, Tilburg University, School of Economics and Management.
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