Interest barrier and capital structure response

Stephan Alberternst and Caren Sureth-Sloane

No 206, arqus Discussion Papers in Quantitative Tax Research from arqus - Arbeitskreis Quantitative Steuerlehre

Abstract: The Organisation for Economic Co-Operation and Development (OECD) recently proposed an interest barrier to fight tax base erosion and profit shifting (BEPS). We use the introduction of such an interest deductibility restriction in Germany as a quasi-experiment and find significant corporate capital structure responses. Using single entity financial statements and a detailed matching approach, we find evidence that companies that are affected by the interest barrier reduce their leverage by 4.7 percentage points more than non-affected companies. The effects are stronger among non-financially constrained firms. Our results imply that interest barrier effects on capital structure have so far been heavily underestimated.

Keywords: financing decisions; German tax reform; interest barrier; leverage (search for similar items in EconPapers)
JEL-codes: F34 H21 H24 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:arqudp:206

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