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

Author

Listed:
  • Jan Bartholdy
  • Gordon R. Fisher
  • Jack Mintz

Abstract

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.

Suggested Citation

  • Jan Bartholdy & Gordon R. Fisher & Jack Mintz, 1989. "An Empirical Study of the Impact of Corporate Taxation on the Debt Policy of Canadian Firms," Working Paper 742, Economics Department, Queen's University.
  • Handle: RePEc:qed:wpaper:742
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    Citations

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    Cited by:

    1. Glenn Boyle & Kelly Eckhold, 1997. "Capital structure choice and financial market liberalization: evidence from New Zealand," Applied Financial Economics, Taylor & Francis Journals, vol. 7(4), pages 427-437.
    2. Roy D.. Hogg & Jack Mintz & Joel Slemrod, 1993. "Impacts of Canadian and U.S. Tax Reform on the Financing of Canadian Subsidiaries of U.S. Parents," NBER Chapters, in: Studies in International Taxation, pages 47-76, National Bureau of Economic Research, Inc.
    3. Zyblock, Miles, 1997. "L'effet de levier financier des entreprises : une comparaison entre le Canada et les E.-U., 1961-1996," Direction des études analytiques : documents de recherche 1997111f, Statistics Canada, Direction des études analytiques.
    4. Bartholdy, Jan & Mateus, Cesário, 2006. "Debt and Taxes: Evidence from bank-financed unlisted firms," Finance Research Group Working Papers F-2006-02, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    5. Vijay Jog & Jianmin Tang, 2001. "Tax Reforms, Debt Shifting and Tax Revenues: Multinational Corporations in Canada," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 8(1), pages 5-25, January.
    6. Zyblock, Miles, 1997. "Corporate Financial Leverage: A Canada - U.S. Comparison, 1961-1996," Analytical Studies Branch Research Paper Series 1997111e, Statistics Canada, Analytical Studies Branch.

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