Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/64815
Authors: 
Hartmann-Wendels, Thomas
Stein, Ingrid
Stöter, Alwin
Year of Publication: 
2012
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 18/2012
Abstract: 
This paper provides new evidence that taxes affect capital structure choice, using a unique and comprehensive panel data set which covers 86,173 German non-financial firms over the years 1973-2008. Following the Graham methodology to simulate marginal tax rates, we find a statistically and economically significant positive relationship between the marginal tax benefit of debt (net and gross of investor taxes) and the debt ratio. A 10% increase in the net (gross) marginal tax benefit of debt causes a 1.5% (1.6%) increase in the debt ratio, ceteris paribus. The results are robust to various specifications like using changes in debt or debt to capital ratios. A significantly positive effect of taxes on the debt ratio can also be identified in a partial adjustment model.
Subjects: 
debt
capital structure
marginal tax rate
corporate taxes
personal taxes
JEL: 
G32
H20
ISBN: 
978-3-86558-830-2
Document Type: 
Working Paper

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