Capital Structure, Corporate Taxation and Firm Age

Michael Pfaffermayr, Matthias Stöckl () and Hannes Winner
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Matthias Stöckl: University of Innsbruck

No 829, Working Papers from Oxford University Centre for Business Taxation

Abstract: This paper analyzes the relationship between corporate taxation, firm age and debt. We adapt a standard model of capital structure choice under corporate taxation, focusing on the financing and investment decisions a firm is typically faced with. Our model suggests that the debt ratio is positively associated with the corporate tax rate, and negatively with firm age. Further, we predict that the tax-induced advantage of debt is more important for older than for younger firms. To test these hypotheses empirically, we use a cross-section of 405,000 firms from 35 European countries and 126 NACE 3-digit industries. In line with previous research, we find that a firm's debt ratio increases with the corporate tax rate. Further, we observe that older rms exhibit smaller debt ratios than their younger counterparts. Finally, consistent with our theoretical model, we find a positive interaction between corporate taxation and firm age, indicating that the impact of corporate taxation on debt is increasing over a firm's life-time.

Keywords: Corporate taxation; Capital structure; Firm age (search for similar items in EconPapers)
JEL-codes: C31 G32 H20 H32 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-bec and nep-pub
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Capital Structure, Corporate Taxation and Firm Age (2013)
Working Paper: Capital Structure, Corporate Taxation and Firm Age (2012)
Working Paper: Capital structure, corporate taxation and firm age (2009)
Working Paper: Capital Structure, Corporate Taxation and Firm Age
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