VGSF - WU Vienna - LC

Toni Whited, University of Michigan, Ross School of Business

online 14:00 - 15:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Toni Whited from Uni­versity of Michigan, Ross School of Busi­ness to present her re­search pa­per.
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Taxes De­press Cor­por­ate Bor­row­ing: Evid­ence from Private Firms

We re-ex­am­ine the re­la­tion between taxes and cor­por­ate lever­age, us­ing vari­ation in state cor­por­ate in­come tax rates. In con­trast with prior re­search, we doc­u­ment that cor­por­ate lever­age in­creases fol­low­ing tax cuts for both privately held and pub­licly lis­ted firms. We use an es­tim­ated dy­namic equi­lib­rium model to show that tax cuts res­ult in lower de­fault spreads and more dis­tant de­fault thresholds. These ef­fects out­weigh the loss of be­ne­fits from the in­terest tax de­duc­tion and lead to higher lever­age, espe­cially for privately held firms. Over­all, debt tax shields ap­pear to be a sec­ond­ary cap­ital struc­ture con­sid­er­a­tion.

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