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An Empirical Study of the Impact of Corporate Taxation on the Debt Policy of Canadian Firms

  • Jan Bartholdy
  • Gordon R. Fisher
  • Jack Mintz

This paper discusses the influence of Canadian corporate tax rates on the debt-asset ratios of Canadian firms, 1970-82. Five theoretical models are reviewed and used to construct a linear encompassing model of financial structure. Empirical evidence from Canadian firms from COMPUSTAT files supports the tax loss, bankruptcy cost, managerial incentive and adverse selection models and rejects the Miller model. The most novel and significant finding is that corporate tax rates have a strong, positive, and stable effect on debt-asset ratios.

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Paper provided by Queen's University, Department of Economics in its series Working Papers with number 742.

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Length: 42 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:qed:wpaper:742
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