Corporate tax incentives and capital structure: New evidence from UK firm-level tax returns
We investigate how companies’ capital structure is affected by corporate income taxes using confidential company-level tax returns for a large sample of UK firms. Exploiting variation in companies’ marginal tax rates, we find a positive and substantial long-run tax effect on leverage. Leverage respo...
| Main Authors: | , , |
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| Format: | Journal article |
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Elsevier
2017
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| _version_ | 1826272802113585152 |
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| author | Devereux, M Maffini, G Xing, J |
| author_facet | Devereux, M Maffini, G Xing, J |
| author_sort | Devereux, M |
| collection | OXFORD |
| description | We investigate how companies’ capital structure is affected by corporate income taxes using confidential company-level tax returns for a large sample of UK firms. Exploiting variation in companies’ marginal tax rates, we find a positive and substantial long-run tax effect on leverage. Leverage responds more to decreases in the marginal tax rate, and it responds to changes in the marginal rather than the average tax rate. Most importantly, we find that the marginal tax rate based on tax returns has greater explanatory power for companies’ leverage than the marginal tax rate based on financial statements. Our study suggests that errors in the measurement for tax incentives using financial statements could lead to underestimation of the tax effects on capital structure. |
| first_indexed | 2024-03-06T22:18:20Z |
| format | Journal article |
| id | oxford-uuid:542c71a6-e0de-4f84-8a74-f007fbad20a9 |
| institution | University of Oxford |
| last_indexed | 2024-03-06T22:18:20Z |
| publishDate | 2017 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | oxford-uuid:542c71a6-e0de-4f84-8a74-f007fbad20a92022-03-26T16:36:08ZCorporate tax incentives and capital structure: New evidence from UK firm-level tax returnsJournal articlehttp://purl.org/coar/resource_type/c_dcae04bcuuid:542c71a6-e0de-4f84-8a74-f007fbad20a9Symplectic Elements at OxfordElsevier2017Devereux, MMaffini, GXing, JWe investigate how companies’ capital structure is affected by corporate income taxes using confidential company-level tax returns for a large sample of UK firms. Exploiting variation in companies’ marginal tax rates, we find a positive and substantial long-run tax effect on leverage. Leverage responds more to decreases in the marginal tax rate, and it responds to changes in the marginal rather than the average tax rate. Most importantly, we find that the marginal tax rate based on tax returns has greater explanatory power for companies’ leverage than the marginal tax rate based on financial statements. Our study suggests that errors in the measurement for tax incentives using financial statements could lead to underestimation of the tax effects on capital structure. |
| spellingShingle | Devereux, M Maffini, G Xing, J Corporate tax incentives and capital structure: New evidence from UK firm-level tax returns |
| title | Corporate tax incentives and capital structure: New evidence from UK firm-level tax returns |
| title_full | Corporate tax incentives and capital structure: New evidence from UK firm-level tax returns |
| title_fullStr | Corporate tax incentives and capital structure: New evidence from UK firm-level tax returns |
| title_full_unstemmed | Corporate tax incentives and capital structure: New evidence from UK firm-level tax returns |
| title_short | Corporate tax incentives and capital structure: New evidence from UK firm-level tax returns |
| title_sort | corporate tax incentives and capital structure new evidence from uk firm level tax returns |
| work_keys_str_mv | AT devereuxm corporatetaxincentivesandcapitalstructurenewevidencefromukfirmleveltaxreturns AT maffinig corporatetaxincentivesandcapitalstructurenewevidencefromukfirmleveltaxreturns AT xingj corporatetaxincentivesandcapitalstructurenewevidencefromukfirmleveltaxreturns |