Working Paper: NBER ID: w2632
Authors: Jeffrey K. Mackie-Mason
Abstract: A new empirical method and data set are used to study the effects of tax policy on corporate financing choices. Clear evidence emerges that non-debt tax shields "crowd out" interest deductibility, thus decreasing the desirability of debt issues at the margin. Previous studies which failed to find tax effects examined debt-equity ratios rather than individual, well-specified financing choices. This paper also demonstrates the importance of controlling for confounding effects which other papers ignored. Results on other (asymmetric information) effects on financing decisions are also presented.
Keywords: tax policy; corporate financing; debt equity choice; nondebt tax shields
JEL Codes: H25; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nondebt tax shields (H24) | likelihood of issuing debt (H74) |
| value of nondebt tax shields (G32) | likelihood of issuing debt (H74) |
| expected value of interest deductibility (G32) | likelihood of issuing debt (H74) |
| nondebt tax shields (H24) | expected value of interest deductibility (G32) |