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Tax Incentives and Capital Structure Choice: Evidence from Germany

Authors and Corporations: Hartmann-Wendels, Thomas (Author), Stein, Ingrid (Other), Stöter, Alwin (Other)
Title: Tax Incentives and Capital Structure Choice: Evidence from Germany
Language: English
published:
[S.l.] SSRN [2012]
Item Description: 1 Online-Ressource (27 p) ; Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments November 28, 2012 erstellt
DOI: 10.2139/ssrn.2140896
Description
This paper provides new evidence that taxes affect capital structure choice, using a unique and comprehensive panel data set which covers 86,173 German non-financial firms over the years 1973-2008. Following the Graham methodology to simulate marginal tax rates, we find a statistically and economically significant positive relationship between the marginal tax benefit of debt (net and gross of investor taxes) and the debt ratio. A 10% increase in the net (gross) marginal tax benefit of debt causes a 1.5% (1.6%) increase in the debt ratio, ceteris paribus. The results are robust to various specifications like using changes in debt or debt to capital ratios. A significantly positive effect of taxes on the debt ratio can also be identified in a partial adjustment model