Tax incentives and capital structure choice: Evidence from Germany

Thomas Hartmann-Wendels, Ingrid Stein () and Alwin Stöter

No 18/2012, Discussion Papers from Deutsche Bundesbank

Abstract: This paper provides new evidence that taxes affect capital structure choice, using a unique and comprehensive panel data set which covers 86,173 German non-financial firms over the years 1973-2008. Following the Graham methodology to simulate marginal tax rates, we find a statistically and economically significant positive relationship between the marginal tax benefit of debt (net and gross of investor taxes) and the debt ratio. A 10% increase in the net (gross) marginal tax benefit of debt causes a 1.5% (1.6%) increase in the debt ratio, ceteris paribus. The results are robust to various specifications like using changes in debt or debt to capital ratios. A significantly positive effect of taxes on the debt ratio can also be identified in a partial adjustment model.

Keywords: debt; capital structure; marginal tax rate; corporate taxes; personal taxes (search for similar items in EconPapers)
JEL-codes: G32 H20 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-acc, nep-eur and nep-pbe
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:182012

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