Debt and taxes: Evidence from the real estate industry

Michael J. Barclay, Shane M. Heitzman and Clifford W. Smith

Journal of Corporate Finance, 2013, vol. 20, issue C, 74-93

Abstract: Compelling empirical evidence documenting a material effect of corporate taxes on leverage decisions is limited, in part because of difficulties in constructing an effective proxy for the firm's tax benefit of debt. We examine leverage decisions across taxable and nontaxable real estate firms—firms for which we can measure the relative tax benefit of debt with little error. The tax hypothesis implies that for firms with similar asset portfolios, taxable firms should have more debt than their nontaxable counterparts. Consistent with this, leverage ratios of taxable real estate firms are higher than their nontaxable counterparts, but the magnitude of this difference is at most one-half of that implied by studies that employ simulated marginal tax rates.

Keywords: Capital structure; Taxes; Marginal tax rates; Organizational form (search for similar items in EconPapers)
JEL-codes: G32 G38 H25 M40 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:20:y:2013:i:c:p:74-93

DOI: 10.1016/j.jcorpfin.2012.12.002

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