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Japanese Firms’ Debt Policy And Tax Policy

  • Kunieda, Shigeki
  • Takahata, Junichiro
  • Yada, Haruna
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    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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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/21194/1/070econDP11-11.pdf
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    Paper provided by Graduate School of Economics, Hitotsubashi University in its series Discussion Papers with number 2011-11.

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    Length: 43 p.
    Date of creation: Dec 2011
    Date of revision:
    Handle: RePEc:hit:econdp:2011-11
    Contact details of provider: Phone: +81-42-580-8000
    Web page: http://www.econ.hit-u.ac.jp/

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    1. Rosanne Altshuler & Alan J. Auerbach, 1987. "The Significance of Tax Law Asymmetries: An Empirical Investigation," NBER Working Papers 2279, National Bureau of Economic Research, Inc.
    2. Graham, John R., 1999. "Do personal taxes affect corporate financing decisions?," Journal of Public Economics, Elsevier, vol. 73(2), pages 147-185, August.
    3. Gordon, Roger H. & Lee, Young, 2001. "Do taxes affect corporate debt policy? Evidence from U.S. corporate tax return data," Journal of Public Economics, Elsevier, vol. 82(2), pages 195-224, November.
    4. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    5. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    6. Malcolm Baker & Jeffrey Wurgler, 2002. "Market Timing and Capital Structure," Journal of Finance, American Finance Association, vol. 57(1), pages 1-32, 02.
    7. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
    8. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. " On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-78, July.
    9. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
    10. Keiichi Kubota & Hitoshi Takehara, 2007. "Effects of Tax Rate Changes on the Cost of Capital: The Case of Japanese Firms," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 63(2), pages 163-185, June.
    11. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2850-2866.
    12. John R. Graham, 2000. "How Big Are the Tax Benefits of Debt?," Journal of Finance, American Finance Association, vol. 55(5), pages 1901-1941, October.
    13. Julian Alworth & Giampaolo Arachi, 2001. "The Effect of Taxes on Corporate Financing Decisions: Evidence from a Panel of Italian Firms," International Tax and Public Finance, Springer, vol. 8(4), pages 353-376, August.
    14. Graham, John R., 1996. "Debt and the marginal tax rate," Journal of Financial Economics, Elsevier, vol. 41(1), pages 41-73, May.
    15. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June.
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