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The impact of tax policy on corporate debt in a developing economy: A study of unquoted Indian companies

  • Christopher J. Green

    ()

    (Dept of Economics, Loughborough University)

  • Victor Murinde

    ()

    (Birmingham Business School, The University of Birmingham)

Taxation has potentially important implications for corporate behaviour. However, there have been few studies of the impact of taxation on companies in developing countries, and fewer still concerned with unquoted companies. In this paper, we study the impact of tax policy on the financial decisions of a sample of unquoted companies in India during the period 1989-99 when tax rates were generally reduced as part of a wider programme of financial liberalization. We examine the impact of the tax regime on company financing decisions, within the context of a model of company leverage, controlling for non-tax influences suggested by the theory of corporate finance. The analysis is carried out using a balanced panel consisting of the published accounts of 97 Indian unquoted companies which reported continuously during 1989-99. The model is estimated using GMM. Estimates of the impact of the 1990s tax reforms are derived, and implications for policy are drawn.

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File URL: http://www.lboro.ac.uk/departments/ec/RePEc/lbo/lbowps/cftx-unq-in4WP.pdf
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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2007_25.

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Date of creation: Sep 2007
Date of revision: Sep 2007
Handle: RePEc:lbo:lbowps:2007_25
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