Capital structure of firms when taxes are removed

Bader Alhashel

Journal of Economic and Administrative Sciences, 2015, vol. 31, issue 1, 51-63

Abstract: Purpose - – The purpose of this paper is to further the understanding of the non-tax benefits of debt. Design/methodology/approach - – This paper analyzes the capital structure of firms when taxes are removed by analyzing firms in an emerging market, Kuwait, where personal and corporate taxation does not exist. Findings - – The leverage of firms in markets with no taxes are affected by the same leverage factors that affect firms where taxes are present. Non-tax benefits are economically significant and are almost 16 percent of firm value for the average leveraged firm. Practical implications - – Given such a finding and the positive effect of debt on firm value, there should be policies to facilitate bank lending and more efficient access to credit for firms. Originality/value - – The paper provides an estimate of the size of the non-tax benefits of debt.

Keywords: Capital structure; Debt; Emerging market; Non-tax benefits (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:jeaspp:v:31:y:2015:i:1:p:51-63

DOI: 10.1108/JEAS-10-2013-0040

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