Capital Structure, Corporate Taxation and Firm Age

Michael Pfaffermayr (), Matthias Stöckl () and Hannes Winner ()
Authors registered in the RePEc Author Service: Matthias Stoeckl ()

Working Papers from Faculty of Economics and Statistics, University of Innsbruck

Abstract: This paper analyzes the relationship between capital structure, corporate taxation and firm age. We adapt a standard model of optimal capital structure choice under corporate taxation, focusing on the financing and investment decisions a young firm is typically faced with. Our model allows to derive testable hypotheses about the relationship between corporate taxation, a firm's age and its debt to asset ratio. To test these hypotheses empirically, we use a cross-section of 405,000 firms from 35 European countries and 126 NACE 3-digit industries. In line with previous research, we find that a firm's debt ratio increases with the corporate tax rate. Further, we observe that older firms exhibit smaller debt ratios than their younger counterparts. Finally, consistent with our theoretical expectation, we find a positive interaction effect between corporate taxation and firm age, indicating that the impact of corporate taxation on debt is increasing over a firm's life-time.

Keywords: Corporate taxation; Capital structure; Firm age (search for similar items in EconPapers)
JEL-codes: H20 H32 G32 C31 (search for similar items in EconPapers)
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Related works:
Working Paper: Capital Structure, Corporate Taxation and Firm Age (2008)
Working Paper: Capital structure, corporate taxation and firm age (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:inn:wpaper:2008-09

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