Capital Structure Decisions Under Classical and Imputation Tax Systems: A Natural Test for Tax Effects in Australia

Kerry Pattenden
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Kerry Pattenden: School of Business and Economics, H69, University of Sydney, NSW 2006.

Australian Journal of Management, 2006, vol. 31, issue 1, 67-92

Abstract: The paper investigates determinants of capital structure, focusing on tax incentives for debt. The paper makes use of a panel of Australian firms in two tax regimes: a classical regime, and a dividend imputation regime. An important feature is the identification of the economic model using Bayesian selection methods. This methodology offers a new way of examining and assessing interactions between variables where there are competing explanations, noisy data and no unifying theory. As hypothesized, the results demonstrate a significant tax coefficient during the classical era and an insignificant tax coefficient in the imputation era. Risk and signalling variables, represented by firm size, Z-score, operating risk and asset base are also found to help explain capital structure choice.

Keywords: TAXATION; IMPUTATION; CAPITAL STRUCTURE; BAYESIAN VARIABLE SELECTION (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:31:y:2006:i:1:p:67-92

DOI: 10.1177/031289620603100105

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