Do personal taxes affect corporate financing decisions?
Journal Article (Journal Article)
The traditional view is that interest deductibility encourages firms to use debt financing; however, some argue that the personal tax disadvantage to interest offsets the corporate tax advantage. This paper investigates the degree to which personal taxes affect corporate financing decisions. In cross-sectional regressions that control for personal taxes, debt usage is positively correlated with tax rates in each year 1980-1994, with significant coefficients in almost every year. A specification that adjusts tax benefits for the personal tax penalty statistically dominates a specification that does not. The positive (negative) effect of corporate (personal) taxes on debt usage is distinctly identified. © Elsevier Science S.A.
- Graham, JR
- August 1, 1999
Volume / Issue
- 73 / 2
Start / End Page
- 147 - 185
International Standard Serial Number (ISSN)
Digital Object Identifier (DOI)