Capital Structure, Corporate Taxation and Firm Age

Michael Pfaffermayr, Matthias Stöckl () and Hannes Winner

Working Papers from Faculty of Economics and Statistics, Universität Innsbruck

Abstract: This paper analyzes the relationship between capital structure, corporate taxation and firm age. We adapt a standard model of optimal capital structure choice under corporate taxation, focusing on the financing and investment decisions a young firm is typically faced with. Our model allows to derive testable hypotheses about the relationship between corporate taxation, a firm's age and its debt to asset ratio. 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 firms exhibit smaller debt ratios than their younger counterparts. Finally, consistent with our theoretical expectation, we find a positive interaction effect 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)
Pages: 35
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Citations: View citations in EconPapers (6)

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https://www2.uibk.ac.at/downloads/c4041030/wpaper/2008-09.pdf (application/pdf)

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 (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:inn:wpaper:2008-09

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