Is The Negative Relationship Between Debt Levels and Investment Opportunities Robust to Non-Debt Tax Shields? Evidence From South Africa

S Davidson

Studies in Economics and Econometrics, 1997, vol. 21, issue 2, 69-83

Abstract: This paper investigates whether the negative relationship between firm debt levels and investment opportunity sets can be explained by tax considerations. The usual explanation for the inverse relationship is asymmetric information and agency problems. It is possible that tax considerations and especially non-debt tax shields could also explain the relationship. The results indicate that the inverse relationships is robust to the inclusion of non-debt tax shields and other determinants of leverage. In short, the results indicate that agency cost and information asymmetry explanations for leverage are important.

Date: 1997
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DOI: 10.1080/03796205.1997.12129109

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