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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)
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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},
  keyword      = {Capital structure,Leverage,Corporate income tax,Dynamic trade-off theory,Tax shield},
  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},
}