Resource title

The Impact of Personal and Corporate Taxation on Capital Structure Choices

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Resource description

This paper empirically analyses whether both personal and corporate taxation have an impact on companies' capital structure decisions. We investigate the effect of the difference in taxation of debt and equity financing on capital structures. Our empirical results, based on a comprehensive panel of European firm-level data, suggest that a higher tax benefit of debt has the expected significant positive impact on a company's financial leverage. Particularly, we find evidence that the capital structures of smaller companies respond more heavily to changes in the tax benefit of debt. Additional analysis confirms that not only corporate taxes are relevant for corporate financial planning, but variation in capital income tax rates at the shareholder level implicates significant capital structure adjustments as well. Moreover, we find substitutive relationships between non-debt tax shields and the effect of the corporate tax rate on capital structures.

Resource author

Dennis Voeller, Michael Overesch

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/24714

Resource license

Adapt according to the presented license agreement and reference the original author.