Publication: Taxation and Capital Structure : Evidence from a Transition Economy
Date
2008-10
ISSN
Published
2008-10
Author(s)
Abstract
The authors examine the effects of
taxation on financing policy using the corporate tax reform
in 2001 in Croatia as a natural experiment. Since the extant
literature on tax effects on capital structure studies
listed firms in developed countries, it is worth
investigating whether the same results apply to
privately-held, small and medium size firms in transition
economies. The findings provide significant evidence that
lower taxes have affected the capital structure of Croatian
firms, resulting in increased equity levels and decreased
long-term debt levels. The authors also find that smaller
and more profitable firms were more likely to reduce their
debt levels. These findings are consistent with the
trade-off theory of capital structure, which suggests that
lower taxes decrease the incentive to hold debt due to
decreasing interest tax deductibility.
Citation
“Klapper, Leora; Tzioumis, Konstantinos. 2008. Taxation and Capital Structure : Evidence from a Transition Economy. Policy Research Working Paper; No. 4753. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/6925d56c-fd3b-5e89-b4f8-ecfff7596b5a License: CC BY 3.0 IGO.”
Report Series
Report Series
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