An Implicit Clientele Test of the Relationship between Taxation and Capital Structure

Paul Grier and Paul Strebel

No 481, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a test for the existence of debt clienteles in which the latter are represented by progressive personal tax brackets. The test generates some evidence consistent with the implication of debt clientele theory that, over time, firms' debt ratios should vary with the relative tax incentives which their investors have to hold debt. Changes in the relative structure of taxes, however, at best only partially account for the time series behavior of debt ratios, especially in the case of high debt firms.

Date: 1980-06
Note: PE
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Published as "The Empirical Relationship Between Taxation and Capital Structure" Financial Review, Vol. 15, no. 3 (1980): 45-57.

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