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How do listed non-financial companies adjust their capital structure after an increase in corporate income tax rate?

Wulff, Tim LU and Reichey, Anthony LU (2017) BUSN79 20171
Department of Business Administration
Abstract
Purpose:
The purpose of this study is to investigate how listed non-financial companies in the German and French markets adjust their leverage after corporate income tax increases.

Methodology:
We performed a panel data regression analysis with a difference-in-differences approach based on Heider & Ljungqvist (2015) and Schandlbauer (2016). We used the firm size, market-to-book and tangibility as explanatory variables and tested for robustness by additionally including the following control variables: Return on assets, profitability, reported taxes / earnings.

Foundation:
Basis for this thesis have been 2.222 observations from 421 different companies listed in the Prime and General Standard of Germany and France in the periods... (More)
Purpose:
The purpose of this study is to investigate how listed non-financial companies in the German and French markets adjust their leverage after corporate income tax increases.

Methodology:
We performed a panel data regression analysis with a difference-in-differences approach based on Heider & Ljungqvist (2015) and Schandlbauer (2016). We used the firm size, market-to-book and tangibility as explanatory variables and tested for robustness by additionally including the following control variables: Return on assets, profitability, reported taxes / earnings.

Foundation:
Basis for this thesis have been 2.222 observations from 421 different companies listed in the Prime and General Standard of Germany and France in the periods of 2001 - 2004 and 2011 - 2014 which we obtained by Capital IQ, DataStream and Thomson Reuters.

Conclusion:
Companies in Germany and France significantly increase their leverage after an increase in corporate taxes. Moreover, we conclude better-capitalized companies increase their leverage, whereas worse-capitalized companies do not react as strong to the change in taxes due to a lack of financial flexibility.
Firm size, Market-to-book (only in France), and tangibility are significant explanatory variables that can be used as proxies for the leverage behaviour. (Less)
Please use this url to cite or link to this publication:
author
Wulff, Tim LU and Reichey, Anthony LU
supervisor
organization
course
BUSN79 20171
year
type
H1 - Master's Degree (One Year)
subject
keywords
Capital structure, Leverage, Corporate income tax, Dynamic trade-off theory, Tax shield
language
English
id
8916194
date added to LUP
2017-07-05 16:20:57
date last changed
2017-07-05 16:20:57
@misc{8916194,
  abstract     = {{Purpose: 
The purpose of this study is to investigate how listed non-financial companies in the German and French markets adjust their leverage after corporate income tax increases.

Methodology: 
We performed a panel data regression analysis with a difference-in-differences approach based on Heider & Ljungqvist (2015) and Schandlbauer (2016). We used the firm size, market-to-book and tangibility as explanatory variables and tested for robustness by additionally including the following control variables: Return on assets, profitability, reported taxes / earnings.

Foundation: 
Basis for this thesis have been 2.222 observations from 421 different companies listed in the Prime and General Standard of Germany and France in the periods of 2001 - 2004 and 2011 - 2014 which we obtained by Capital IQ, DataStream and Thomson Reuters.

Conclusion: 
Companies in Germany and France significantly increase their leverage after an increase in corporate taxes. Moreover, we conclude better-capitalized companies increase their leverage, whereas worse-capitalized companies do not react as strong to the change in taxes due to a lack of financial flexibility.
Firm size, Market-to-book (only in France), and tangibility are significant explanatory variables that can be used as proxies for the leverage behaviour.}},
  author       = {{Wulff, Tim and Reichey, Anthony}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{How do listed non-financial companies adjust their capital structure after an increase in corporate income tax rate?}},
  year         = {{2017}},
}