Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/55334
Authors: 
Princen, Savina
Year of Publication: 
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

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