Taxes do Affect Corporate Financing Decisions: The Case of Belgian ACE
(2012) , 20 pages
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- Authors
- 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.
- Affiliations
Louvain School of Management Accounting & Finance
Citations
Princen, S. (2012). Taxes do Affect Corporate Financing Decisions: The Case of Belgian ACE (CESifo Working Papers 3713). https://hdl.handle.net/2078.5/32805