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Title:The Impact of Personal and Corporate Taxation on Capital Structure Choices PDF Logo
Authors:Voeller, Dennis
Overesch, Michael
Issue Date:2008
Series/Report no.:ZEW Discussion Papers 08-020
Abstract: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.
Subjects:Capital Structure
Corporate Income Tax
Personal Income Tax
Firm-Level Data
JEL:G30
H25
G32
H24
Document Type:Working Paper
Appears in Collections:ZEW Discussion Papers
Publikationen von Forscherinnen und Forschern des ZEW

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