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Business and Economics > Corporate Taxation

You are looking at 1 - 7 of 7 items for :

  • Type: Journal Issue x
  • Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill x
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Cover IMF Working Papers
Pouring Oil on Fire: Interest Deductibility and Corporate Debt
Pietro Dallari
,
Mr. Nicolas End
,
Fedor Miryugin
,
Alexander F. Tieman
, and
Mr. Seyed Reza Yousefi
This paper investigates the role of tax incentives towards debt finance in the buildup of leverage in the nonfinancial corporate (NFC) sector, using a large firm-level dataset. We find that so-called debt bias is a significant driver of leverage, for both small and medium-sized enterprises and larger firms, with its effect accounting for about a quarter of leverage. The strength of this effect differs with firm size, the availability of collateral, income and income volatility, cash flow, and capital intensity. We conclude that leveling the playing field between debt and equity finance through tax policy reform would decrease NFC leverage, reducing economic risks posited by leverage.
Keywords:
WP; firm; debt; SME; Leverage; Debt Bias; Tax Policy; Corporate Income Tax; SMEs; Micro data; leverage decision; coefficient estimate; incurred debt; debt firm; debt contract; leverage ratio; estimates of debt bias; long-term debt; strength of debt bias; effect of debt bias; bias coefficient estimate; Capital productivity; Financial statements; Currencies; Europe; Global; interest deductibility; corporate debt; quantile regression; copyright Page; Oil
Cover IMF Working Papers
Curbing Corporate Debt Bias
Ruud A. de Mooij
and
Mr. Shafik Hebous
Tax provisions favoring corporate debt over equity finance (“debt bias”) are widely recognized as a risk to financial stability. This paper explores whether and how thin-capitalization rules, which restrict interest deductibility beyond a certain amount, affect corporate debt ratios and mitigate financial stability risk. We find that rules targeted at related party borrowing (the majority of today’s rules) have no significant impact on debt bias—which relates to third-party borrowing. Also, these rules have no effect on broader indicators of firm financial distress. Rules applying to all debt, in contrast, turn out to be effective: the presence of such a rule reduces the debt-asset ratio in an average company by 5 percentage points; and they reduce the probability for a firm to be in financial distress by 5 percent. Debt ratios are found to be more responsive to thin capitalization rules in industries characterized by a high share of tangible assets.
Keywords:
WP; dependent variable; TCR rule; Corporate tax; capital structure; debt bias; thin capitalization rule; interest deductibility; TCR variable; so-called thin capitalization rules; EBITDFA percentage; debt-asset ratio; tcrs in industry; uniform tcrs; TCR type; Corporate income tax; Thin capitalization rules; Financial statistics; Global
Cover IMF Working Papers
Taxation and Corporate Debt: Are Banks any Different?
Mr. Jost Heckemeyer
and
Ruud A. de Mooij
This paper explores whether corporate tax bias toward debt finance differs between banks and nonbanks, using a large panel of micro data. On average, it finds that there is no significant difference. The marginal tax effect for both banks and non-banks is close to 0.2. However, the responsiveness differs considerably across the size distribution and the conditional leverage distribution. For nonbanks, we find a U-shaped relationship between asset size and tax responsiveness, although this pattern does not hold universally across the conditional leverage distribution. For banks, in contrast, the tax responsiveness declines linearly in asset size. Quantile regressions show further that capitaltight banks are significantly less responsive than are capital-abundant banks; the same pattern holds for the largest non-banks. Still, even the largest banks with high conditional leverage ratios feature a significant, positive tax response.
Keywords:
WP; bank; debt; size distribution; quantile; Corporate tax; debt bias; leverage; banks; non-financial firms; quantile regressions; leverage ratio; bank dummy; capital structure regression; bank assets; bank choice; Corporate income tax; Bank levy; Collateral; Inflation; Global
Cover IMF Working Papers
Taxation, Bank Leverage, and Financial Crises
Ruud A. de Mooij
,
Mr. Michael Keen
, and
Mr. Masanori Orihara
That most corporate tax systems favor debt over equity finance is now widely recognized as, potentially, amplifying risks to financial stability. This paper makes a first attempt to explore, empirically, the link between this tax bias and the probability of financial crisis. It finds that greater tax bias is associated with significantly higher aggregate bank leverage, and that this in turn is associated with a significantly greater chance of crisis. The implication is that tax bias makes crises much more likely, and, conversely, that the welfare gains from policies to alleviate it can be substantial—far greater than previous studies, which have ignored financial stability considerations, suggest.
Keywords:
WP; leverage; bank; bank leverage; rate; Bank taxation; corporate tax; debt bias; leverage ratio; bank assets; bank loss; bank characteristic; bank leverage ratio; Corporate income tax; Bank levy; Banking crises
Cover IMF Working Papers
Taxation and Leverage in International Banking
Ms. Grace Weishi Gu
,
Ruud A. de Mooij
, and
Mr. Tigran Poghosyan
This paper explores how corporate taxes affect the financial structure of multinational banks. Guided by a simple theory of optimal capital structure it tests (i) whether corporate taxes induce subsidiary banks to raise their debt-asset ratio in light of the traditional debt bias; and (ii) whether international corporate tax differentials vis-a-vis foreign subsidiary banks affect the intra-bank capital structure through international debt shifting. Using a novel subsidiary-level dataset for 558 commercial bank subsidiaries of the 86 largest multinational banks in the world, we find that taxes matter significantly, through both the traditional debt bias channel and the international debt shifting that is due to the international tax differentials. The latter channel is more robust and tends to be quantitatively more important. Our results imply that taxation causes significant international debt spillovers through multinational banks, which has potentially important implications for tax policy.
Keywords:
WP; short-term debt; tax credit; debt ratio; banking sector; parent bank; Bank taxation; corporate tax; debt bias; leverage; subsidiary bank; tax difference; capital requirement; bank leverage; Corporate income tax; Deposit insurance; Tax allowances; Global
Cover IMF Working Papers
Debt, Taxes, and Banks
Mr. Michael Keen
and
Ruud A. de Mooij
Understanding the impact of the asymmetric tax treatment of debt and equity on the capital structures of financial institutions is critical to shaping and assessing responses to the problem of excessive leverage that underlay the 2009 financial crisis - but there is no empirical evidence to draw on. Guided by a simple model of banks? financing decisions in the presence of both regulatory constraints and tax asymmetries, this paper explores the impact of corporate tax bias on bank leverage, the use of hybrid instruments and regulatory capital ratios for a panel of over 14,000 commercial banks in 82 countries over nine years. On average, the sensitivity of banks? debt choices proves very similar to that of non-financial firms, consistent with rough offsetting of two opposing effects suggested by the theory. As the model predicts, somewhat counter-intuitively, the impact of tax on hybrids is generally weak or insignificant. Responsiveness to taxation varies significantly across banks, however: those holding smaller equity buffers, and larger banks, are noticeably less sensitive to tax.
Keywords:
WP; capital structure; tax rate; Bank taxation; corporate tax; debt bias; leverage; capital requirement; leverage-asset ratio; bank assets; capital structure choice; bank capital structure; Corporate income tax; Capital adequacy requirements; Stocks; Deposit insurance; Tax arrears management; Europe
Cover IMF Working Papers
The Effect of Expected Effective Corporate Tax Rates on Incremental Financing Decisions
Mr. Reint Gropp
This paper uses U.S. panel data to estimate the effect of expected effective corporate tax rates on firm’s leverage. The paper directly estimates expected corporate tax rates using rational expectations. The estimated measures of the expected effective tax rates of firms are related to a continuous measure of incremental debt financing. The paper finds that expected effective tax rates are significantly and positively related to a higher level of debt financing. Simulations suggest that debt issues would double if firms were unable to shield profits and actually faced the statutory tax rate.
Keywords:
WP; financing decision; research and development expenditure; leveraged firm; single tax; capital structure; Compustat data; firm i.; purposes firm; debt-equity ratio; tax payment; Effective tax rate; Tax allowances; Corporate income tax; Average effective tax rate; Wages