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Do Taxes Affect Corporate Decisions? A Review

In: Handbook of the Economics of Finance

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  • Graham, John R.

Abstract

This chapter reviews tax research related to whether corporate and personal taxes affect domestic and multinational capital structure, debt maturity, payout policy, compensation policy, risk management, earnings management, leasing, pensions, R&D partnerships, tax shelters, transfer pricing, repatriation of foreign profits, and organizational form. For each topic, theory related to how taxes can affect corporate decision making and firm value is reviewed, followed by a summary of the related empirical evidence and a discussion of unresolved issues. Tax research generally supports the hypothesis that high-tax rate firms make policy choices in response to tax incentives. Many issues remain unresolved, however, including understanding whether tax effects are of first-order importance, why firms do not pursue tax benefits more aggressively, and measuring the effect of investor-level taxes on corporate actions.

Suggested Citation

  • Graham, John R., 2013. "Do Taxes Affect Corporate Decisions? A Review," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 123-210, Elsevier.
    • Handle: RePEc:eee:finchp:2-a-123-210
    DOI: 10.1016/B978-0-44-453594-8.00003-3
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    Citations

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    Cited by:

    1. Kashefi Pour, Eilnaz & Lasfer, Meziane, 2019. "Taxes, governance, and debt maturity structure: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 58(C), pages 136-161.
    2. Wolfgang Breuer & Jannis Bischof & Christian Hofmann & Jochen Hundsdoerfer & Hans-Ulrich Küpper & Marko Sarstedt & Philipp Schreck & Tim Weitzel & Peter Witt, 2023. "Recent developments in Business Economics," Journal of Business Economics, Springer, vol. 93(6), pages 989-1013, August.
    3. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    4. Lampenius, Niklas & Shevlin, Terry & Stenzel, Arthur, 2021. "Measuring corporate tax rate and tax base avoidance of U.S. Domestic and U.S. multinational firms," Journal of Accounting and Economics, Elsevier, vol. 72(1).
    5. Nicolay, Katharina & Nusser, Hannah & Pfeiffer, Olena, 2017. "On the interdependency of profit shifting channels and the effectiveness of anti-avoidance legislation," ZEW Discussion Papers 17-066, ZEW - Leibniz Centre for European Economic Research.
    6. Alexander Ljungqvist & Liandong Zhang & Luo Zuo, 2017. "Sharing Risk with the Government: How Taxes Affect Corporate Risk Taking," Journal of Accounting Research, Wiley Blackwell, vol. 55(3), pages 669-707, June.
    7. José A. Clemente-Almendros & Francisco Sogorb-Mira, 2016. "The effect of taxes on the debt policy of spanish listed companies," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 7(3), pages 359-391, August.
    8. Stijn Claessens & M Ayhan Kose, 2017. "Asset prices and macroeconomic outcomes: a survey," BIS Working Papers 676, Bank for International Settlements.
    9. Hussein Abedi Shamsabadi & Byung S. Min & Imen Tebourbi & Mohammad Nourani, 2020. "Corporate Governance in Australia: Share Repurchases under an Imputation Tax System," Capital Markets Review, Malaysian Finance Association, vol. 28(1), pages 1-23.
    10. Sinha, Pankaj & Bansal, Vishakha, 2014. "Interrelationship between taxes, capital structure decisions and value of the firm: A panel data study on Indian manufacturing firms," MPRA Paper 58310, University Library of Munich, Germany, revised 30 Jul 2014.
    11. Jeffrey L. Coles & Elena Patel & Nathan Seegert & Matthew Smith, 2022. "How Do Firms Respond to Corporate Taxes?," Journal of Accounting Research, Wiley Blackwell, vol. 60(3), pages 965-1006, June.
    12. Clemente-Almendros, José A. & Sogorb-Mira, Francisco, 2018. "Costs of debt, tax benefits and a new measure of non-debt tax shields: examining debt conservatism in Spanish listed firms," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 21(2), pages 162-175.
    13. Habib, Michel & Brealey, Richard & Cooper, Ian, 2018. "Valuation in the Public and Private Sectors: Tax, Risk, Debt Capacity, and the Cost of Capital," CEPR Discussion Papers 13277, C.E.P.R. Discussion Papers.
    14. Cen, Ling & Maydew, Edward L. & Zhang, Liandong & Zuo, Luo, 2017. "Customer–supplier relationships and corporate tax avoidance," Journal of Financial Economics, Elsevier, vol. 123(2), pages 377-394.
    15. José Manuel Castro Arango, 2015. "El concepto de dividendo en los convenios de doble imposición," Books, Universidad Externado de Colombia, Facultad de Derecho, edition 1, number 807, October.

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