Capital structure choice and company taxation: A meta-study

• Published in: Journal of banking & finance 2013-08, Vol.37 (8), p.2850-2866
• Main Authors: Feld, Lars P., Heckemeyer, Jost H., Overesch, Michael
• Format: Article
• Language: English
• Subjects: Capital structure; Corporate debt; Corporate income tax; Corporate taxes; Debt financing; Estimation bias; Meta-analysis; Studies; Tax rates
• ISSN: 0378-4266; 1872-6372
• DOI: 10.1016/j.jbankfin.2013.03.017

•This meta-analysis of 48 studies (1144 estimates) reveals substantial tax effects on corporate debt financing.•Overall, our meta-regressions predict a marginal tax effect on the debt ratio of 0.27.•In particular the choice of the tax rate proxy determines the outcome of primary analyses.•Moreover, debt characteristics, econometric specifications, and control-variables affect tax effects.•The tax effects on debt are higher in the case of multinational firms. This paper provides a quantitative review of the empirical literature on the tax impact on corporate debt financing. Synthesizing the evidence from 48 previous studies, we find that this impact is substantial. In particular, the tax rate proxy determines the outcome of primary analyses. Measures like the simulated marginal tax rate (Graham, 1996) avoid a downward bias in estimates for the debt response to tax. Moreover, econometric specifications and the set of control-variables affect tax effects. Accounting for misspecification biases by means of meta-regressions, we predict a marginal tax effect on the debt ratio of about 0.27.