Investor Taxation, Firm Heterogeneity and Capital Structure Choice

47 Pages Posted: 9 Nov 2016

See all articles by Magdalena Haring

Magdalena Haring

University of Graz

Rainer Niemann

University of Graz, Center for Accounting Research; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Silke Rünger

University of Graz

Date Written: October 5, 2016

Abstract

We analyze the effect of investor level taxes, firm-specific ownership structure and firm-specific payout policy on firms’ capital structure choice. Our analysis is based on data for 10,983 firms from 13 Central and Eastern European (CEE) countries over the time period 2002-2012. Our results show a significant impact of the net tax benefit of debt on the debt ratio of firms. Ignoring firm heterogeneity, an increase in the net tax benefit of debt by 10 percentage points leads to an increase in the debt ratio of 2.49 percentage points. Taking into account investor-level taxation and firm heterogeneity, an increase in the net tax benefit of debt of 10 percentage points leads to an increase in the debt ratio of only 1.27 percentage points, if the firm’s largest individual domestic owner has more than 50% of the shares. If all individual domestic owners together have more than 50% of the shares, an increase in the net tax benefit of debt of 10 percentage points leads to a negligible increase in the debt ratio of 0.05 percentage points.

Keywords: financing policy, debt ratio, tax benefit, firm ownership, firm heterogeneity

JEL Classification: G320, H240, H250, H320

Suggested Citation

Haring, Magdalena and Niemann, Rainer and Rünger, Silke, Investor Taxation, Firm Heterogeneity and Capital Structure Choice (October 5, 2016). CESifo Working Paper Series No. 6098, Available at SSRN: https://ssrn.com/abstract=2866861 or http://dx.doi.org/10.2139/ssrn.2866861

Magdalena Haring

University of Graz ( email )

Universitaetsstrasse 15 / FE
A-8010 Graz, 8010
Austria

Rainer Niemann (Contact Author)

University of Graz, Center for Accounting Research ( email )

Universitätsstr. 15 / G2
Graz, 8010
Austria
+43-316-380-6444 (Phone)
+43-316-380-9595 (Fax)

HOME PAGE: http://www.uni-graz.at/steuer

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Silke Rünger

University of Graz ( email )

Universitaetsstrasse 15 / G2
A-8010 Graz, 8010
Austria

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