Corporate Taxes and Capital Structure: A Long-Term Historical Perspective / Francis A. Longstaff, Ilya A. Strebulaev.

Format:

Book

Author/Creator:

Longstaff, Francis A.

Contributor:

National Bureau of Economic Research.

Strebulaev, Ilya A.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20372.

NBER working paper series no. w20372

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Corporate Taxes and Capital Structure

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

We study the relation between leverage and corporate tax rates using an extensive data set constructed from all corporate income tax returns filed with the IRS from 1926 to 2009. This data set includes financial statement data from millions of private and public corporations of all sizes. We show that corporate leverage has increased significantly over the past century. We find strong evidence that changes in corporate leverage are directly related to changes in corporate tax rates for all but the smallest firms. These results are robust to the inclusion of control variables for the costs of financial distress, corporate liquidity, and capital market and macroeconomic conditions. The adjustment of leverage to changes in corporate tax rates is slower for smaller firms facing financial constraints. We find that the capital structures of the smallest firms are driven much more by external shocks than is the case for larger firms.

Notes:

Print version record

August 2014.