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Investor Taxation, Firm Heterogeneity and Capital Structure Choice

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  • Magdalena Haring
  • Rainer Niemann
  • Silke Rünger

Abstract

We analyze the effect of investor level taxes, firm-specific ownership structure and firm-specific payout policy on firms’ capital structure choice. Our analysis is based on data for 10,983 firms from 13 Central and Eastern European (CEE) countries over the time period 2002-2012. Our results show a significant impact of the net tax benefit of debt on the debt ratio of firms. Ignoring firm heterogeneity, an increase in the net tax benefit of debt by 10 percentage points leads to an increase in the debt ratio of 2.49 percentage points. Taking into account investor-level taxation and firm heterogeneity, an increase in the net tax benefit of debt of 10 percentage points leads to an increase in the debt ratio of only 1.27 percentage points, if the firm’s largest individual domestic owner has more than 50% of the shares. If all individual domestic owners together have more than 50% of the shares, an increase in the net tax benefit of debt of 10 percentage points leads to a negligible increase in the debt ratio of 0.05 percentage points.

Suggested Citation

  • Magdalena Haring & Rainer Niemann & Silke Rünger, 2016. "Investor Taxation, Firm Heterogeneity and Capital Structure Choice," CESifo Working Paper Series 6098, CESifo.
    • Handle: RePEc:ces:ceswps:_6098
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    More about this item

    Keywords

    financing policy; debt ratio; tax benefit; firm ownership; firm heterogeneity;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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