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.

Full Text

Duke Authors

Cited Authors

  • Graham, JR

Published Date

  • August 1, 1999

Published In

Volume / Issue

  • 73 / 2

Start / End Page

  • 147 - 185

International Standard Serial Number (ISSN)

  • 0047-2727

Digital Object Identifier (DOI)

  • 10.1016/S0047-2727(99)00006-7

Citation Source

  • Scopus