Corporate Taxes and Capital Structure: A Long-Term Historical Perspective

Francis A. Longstaff, Ilya A. Strebulaev

NBER Working Paper No. 20372
Issued in August 2014
NBER Program(s):   CF

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.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20372

Users who downloaded this paper also downloaded* these:
Didier, Levine, and Schmukler w20336 Capital Market Financing, Firm Growth, Firm Size Distribution
Graham, Leary, and Roberts w19910 A Century of Capital Structure: The Leveraging of Corporate America
Hilt w20356 History of American Corporate Governance: Law, Institutions, and Politics
Bolton, Chen, and Wang w20009 Debt, Taxes, and Liquidity
Bunn and Shiller w20370 Changing Times, Changing Values: A Historical Analysis of Sectors within the US Stock Market 1872-2013
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us