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Taxes And Capital Structure: A Study Of European Companies

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  • YUE CHENG
  • CHRISTOPHER J. GREEN

Abstract

We analyse the impact of tax policy on firms' leverage ratios in a balanced panel of 129 medium‐sized listed European companies from 1993 to 2005. A general model of company leverage is applied within which King's tax ratios are used to capture tax policy changes, controlling for non‐tax influences. Leverage measures studied include total, long‐term and short‐term debt. A generalized method of moments estimator is used to control for endogeneity. The results suggest that tax policy has a significant but small impact on firms' debt ratios and that non‐debt tax shields are a substitute for debt in company activities.

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  • Yue Cheng & Christopher J. Green, 2008. "Taxes And Capital Structure: A Study Of European Companies," Manchester School, University of Manchester, vol. 76(s1), pages 85-115, September.
    • Handle: RePEc:bla:manchs:v:76:y:2008:i:s1:p:85-115
    DOI: 10.1111/j.1467-9957.2008.01082.x
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    3. Michael Overesch & Dennis Voeller, 2010. "The Impact of Personal and Corporate Taxation on Capital Structure Choices," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(3), pages 263-294, September.
    4. ShiXue He & Marcel Ausloos, 2017. "Impact of the Global Crisis on SME Internal vs. External Financing in China," Papers 1707.06635, arXiv.org.
    5. Joshua R. Hendrickson, 2014. "Contingent Liability, Capital Requirements, and Financial Reform," Cato Journal, Cato Journal, Cato Institute, vol. 34(1), pages 129-144, Winter.
    6. Mai, Nhat Chi, 2012. "Market timing, taxes and capital structure: evidence from Vietnam," OSF Preprints t3mvs, Center for Open Science.
    7. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2850-2866.
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    9. Silke Rünger & Rainer Niemann & Magdalena Haring, 2019. "Investor taxation, firm heterogeneity and capital structure choice," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(4), pages 719-757, August.

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