The Influence of Income Taxes on the Use of Inside and Outside Debt by Small Businesses

Posted: 24 May 2001

See all articles by Benjamin C. Ayers

Benjamin C. Ayers

University of Georgia

C. Bryan Cloyd

Virginia Tech - Department of Accounting and Information Systems

John R. Robinson

Texas A&M University - Department of Accounting

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Abstract

We investigate the effect of taxes on the utilization of inside debt (loans from owners) and outside debt (loans from non-owners) across small businesses organized as taxable corporations and flow-through entities (Subchapter S corporations and partnerships). We find that the tax incentives to use debt differ according to the type of debt and the type of entity. Our results indicate that the effect of marginal tax rates on the use of outside debt and other non-debt tax shields is similar for both taxable and flow-through entities. In contrast, we find that marginal tax rates are unrelated to the use of inside debt by flow-through entities.

JEL Classification: G32, H25

Suggested Citation

Ayers, Benjamin C. and Cloyd, C. Bryan and Robinson, John R., The Influence of Income Taxes on the Use of Inside and Outside Debt by Small Businesses. Available at SSRN: https://ssrn.com/abstract=269239

Benjamin C. Ayers

University of Georgia ( email )

706-542-3772 (Phone)
706-542-3630 (Fax)

C. Bryan Cloyd

Virginia Tech - Department of Accounting and Information Systems ( email )

Pamplin College of Business
Blacksburg, VA 24061
United States
217-333-4592 (Phone)

John R. Robinson (Contact Author)

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

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