NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do Taxes Affect Corporate Financing Decisions?

Jeffrey MacKie-Mason

NBER Working Paper No. 2632
Issued in June 1988
NBER Program(s):   PE

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.

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Document Object Identifier (DOI): 10.3386/w2632

Published: Journal of Finance, December 1990.

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