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Title:Taxes do affect corporate financing decisions: The case of Belgian ACE PDF Logo
Authors:Princen, Savina
Issue Date:2012
Series/Report no.:CESifo working paper: Public Finance 3713
Abstract:In this paper, I use difference-in-differences regressions to measure how the debt tax shield affects the capital structure of a company. By comparing the financial leverage of treatment and control companies before and after the introduction of an equity tax shield, I infer the impact of the tax discrimination between debt and equity. Consistent with the theoretical prediction, the estimated results show that the introduction of an equity tax shield has a significant negative effect on the financial leverage of a company. This effect amounts to approximately 2-7%, meaning that a classical tax system encourages companies to use on average 2-7% more debt than when there is an equal tax treatment of debt and equity.
Subjects:allowance for corporate equity
corporate financing decisions
JEL:G30
H25
K34
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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