Japanese Firms’ Debt Policy And Tax Policy
Understanding the effects of marginal tax rate on debt policy is crucial not only for considering various capital structure theories of firms but also for evaluating corporate tax reform proposals. In this empirical study, we have found a positive relation in most cases between the firm-specific marginal tax rates (simulated using the method of Shevlin (1990) and Graham (1996)) and the debt ratio increase of Japanese firms. This result shows that the marginal tax rates significantly affect the debt policies of Japanese firms. Corporate tax reform to produce equal treatment of equity and debt is desirable in Japan.
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