Do Taxes Affect Corporate Financing Decisions?

Jeffrey Mackie-Mason

Journal of Finance, 1990, vol. 45, issue 5, 1471-93

Abstract: This paper provides clear evidence of substantial tax effects on the choice between issuing debt or equity; most studies fail to find significant effects. The relationship between tax shields and debt policy is clarified. Other papers miss the fact that most tax shields have a negligible effect on the marginal tax rate for most firms. New predictions are strongly supported by an empirical analysis; the method is to study incremental financing decisions using discrete choice analysis. Previous researchers examined debt/equity ratios, but tests based on incremental decisions should have greater power. Copyright 1990 by American Finance Association.

Date: 1990
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Working Paper: Do Taxes Affect Corporate Financing Decisions? (1988)
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