Investor taxation, firm heterogeneity and capital structure choice

Rünger, Silke; Niemann, Rainer; Haring, Magdalena

doi:10.1007/s10797-019-09536-x

Cited by 5 publications

(5 citation statements)

References 48 publications

(102 reference statements)

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“…While the interest payments are deductible at the corporate level and serve as an interest tax shield, the equity contribution does not result in tax distortion. As a result, debt is more attractive than equity, by comparison (Rünger and Haring 2019). On the contrary, the personal income tax may fully or partly offset the benefits of corporate income tax (Miller 1977).…”

Section: Literature Reviewmentioning

confidence: 99%

Corporate Taxation and Firm-Specific Determinants of Capital Structure: Evidence from the UK and US Multinational Firms

Ali

Rangone

Farooq

2022

JRFM

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This paper aims to examine whether effective tax rate and firm-specific factors (such as firm size, growth opportunities, tangibility, risk, profitability, non-debt tax shields and liquidity) impact the capital structure of multinational firms in the energy sector. We employ regression models consisting of OLS, fixed effect and random effect to test balanced panel dataset of multinational firms based in the UK and USA over the period 2011–2019. We show a positive and significant effect of tangibility, risk, profitability and non-debt tax shields on long-term and total debt measures of capital structure. In the case of short-term debt, however, we reveal that it is significantly negatively related to tangibility, non-debt tax shields and liquidity, and positively associated with firm risk. Moreover, we report that the effective tax rate and firm size are insignificantly negatively related to the leverage choices of multinational firms, and liquidity has a significant inverse relationship with long-term debt and total debt. This study reveals mixed support for the prevailing capital structure theories and evidence that multinational firms are unequivocally responsive to the capital structure. The results significantly contribute to evaluating multinational firms in the energy sector and show how managers can achieve an optimal level of capital structure.

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Section: Literature Reviewmentioning

confidence: 99%

Corporate Taxation and Firm-Specific Determinants of Capital Structure: Evidence from the UK and US Multinational Firms

Ali

Rangone

Farooq

2022

JRFM

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“…On the other hand, the coefficient of the corporate income tax ra te variable is only significant in one of the regressions, and even then, it has low significance. Rünger, et al [39] point out that, from an empirical point of view, the magnitude of the effect of taxes on the capital structure is not always large.…”

Section: Resultsmentioning

confidence: 99%

External governance mechanisms and capital structure: A cross-country analysis

Ahmad,

Khan

2023

ijirss

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This paper seeks to examine how external governance mechanisms related to shareholder protection and creditor rights affect the choice of corporate leverage. The main objective of the study is to examine the relationship between country-level investor protection and the choice of capital structure at the firm level. The sample includes 7490 companies from 40 countries. Data were collected from all publicly listed companies between the years 2013 and 2022, listed in the Van Dijk ORBIS Bureau, based on the fiscal year 2022. This paper opts for the panel data methodology. The results suggest that companies leverage themselves consistently with the Pecking Order Theory. It was observed that the mechanisms associated with the protection of both classes of investors (i.e., shareholders and creditors) significantly influence the capital structure of the companies. The results were robust to several variations in the model studied and indicate that greater investor protection makes firms less likely to use third-party capital. The opposition of insiders (executives and majority shareholders) to debt’s moderating role at their managerial discretion may be the driving force behind this. The differential of the study lies in the distinction between the mechanisms that affect the protection of minority shareholders and those that affect the rights of creditors.

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“…The incentive to accumulate additional equity is therefore higher for smaller firms. Additionally, we include Tangibles , that is, the tangible assets divided by total assets, into our regression model (Scott 1976; Harris and Raviv 1990). Additionally, Pfaffermayr et al, (2013) show that the capital structure of a firm changes throughout its life cycle.…”

Section: Data and Research Designmentioning

confidence: 99%

“…As we have mainly nonlisted firms in the sample, we cannot directly observe the dividend payments. Instead, we follow the approach of Rünger et al, (2019) and calculate the firm-specific dividend ratio, Div, as a function of the firms' profit/loss per period, Profit i,t , and total equity, Eq i,t as follows:…”

Section: Regression Model and Definition Of Variablesmentioning

confidence: 99%

The Effect of an Allowance for Corporate Equity on Capital Structure: Evidence From Austria

Petutschnig

Rünger

2022

Public Finance Review

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We contribute to the empirical literature on the debt bias of corporate income taxation through a firm-level evaluation of the allowance for corporate equity (ACE) in Austria. We find that the Austrian ACE tax system increased corporate equity ratios by approximately 1.36 to 2.30 percentage points. Additionally, we find significant differences in the application of the ACE tax system depending on firm-specific dividend levels and firm-specific ownership structures. In particular, we find that the cost of constraining dividends appears to be higher than the tax benefit of the ACE tax system. Additionally, we find that firms with dispersed ownership refrain from applying the ACE tax system, which might be due to the fact that firms with less dispersed ownership can react more quickly to tax law changes.

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Investor taxation, firm heterogeneity and capital structure choice

Cited by 5 publications

References 48 publications

Corporate Taxation and Firm-Specific Determinants of Capital Structure: Evidence from the UK and US Multinational Firms

Corporate Taxation and Firm-Specific Determinants of Capital Structure: Evidence from the UK and US Multinational Firms

External governance mechanisms and capital structure: A cross-country analysis

The Effect of an Allowance for Corporate Equity on Capital Structure: Evidence From Austria

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