The impact of tax policy on corporate debt in a developing economy: A study of unquoted Indian companies

Christopher Green and Victor Murinde ()
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Victor Murinde: Birmingham Business School, The University of Birmingham

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: Taxation has potentially important implications for corporate behaviour. However, there have been few studies of the impact of taxation on companies in developing countries, and fewer still concerned with unquoted companies. In this paper, we study the impact of tax policy on the financial decisions of a sample of unquoted companies in India during the period 1989-99 when tax rates were generally reduced as part of a wider programme of financial liberalization. We examine the impact of the tax regime on company financing decisions, within the context of a model of company leverage, controlling for non-tax influences suggested by the theory of corporate finance. The analysis is carried out using a balanced panel consisting of the published accounts of 97 Indian unquoted companies which reported continuously during 1989-99. The model is estimated using GMM. Estimates of the impact of the 1990s tax reforms are derived, and implications for policy are drawn.

Keywords: India; corporate finance; taxation (search for similar items in EconPapers)
JEL-codes: G30 G32 O16 (search for similar items in EconPapers)
Date: 2007-09, Revised 2007-09
New Economics Papers: this item is included in nep-cwa and nep-dev
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