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Do Taxes Affect Corporate Financing Decisions?

  • Jeffrey MacKie-Mason

A new empirical method and data set are used to study the effects of tax policy on corporate financing choices. Clear evidence emerges that non-debt tax shields "crowd out" interest deductibility, thus decreasing the desirability of debt issues at the margin. Previous studies which failed to find tax effects examined debt-equity ratios rather than individual, well-specified financing choices. This paper also demonstrates the importance of controlling for confounding effects which other papers ignored. Results on other (asymmetric information) effects on financing decisions are also presented.

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File URL: http://www.nber.org/papers/w2632.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2632.

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Date of creation: Jun 1988
Date of revision:
Publication status: published as Journal of Finance, December 1990.
Handle: RePEc:nbr:nberwo:2632
Note: PE
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  10. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
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  23. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 647-63, October.
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