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The Tax Effect on Capital Structure: An empirical investigation of tax shield utilization following the Tax Cuts and Jobs Act

Rodin, Adam LU and Magnusson, Patrik (2020) BUSN79 20201
Department of Business Administration
Abstract
Mixed support regarding firm capital structure reaction to the Tax Cut and Jobs Act is found. In the main difference-in-differences estimation, support is found for the predictions of trade-off theory after the inclusion of control variables aiming to capture shareholder distribution and capital structure optimization. These results do not prove robust to a more granular matching procedure. A unique contribution is made through the results indicating that even large tax changes may be unable to provoke a downward reaction in leverage ratios. Further, this study exemplifies that to draw meaningful conclusions from policy changes on taxes, standard difference-in-differences estimations may not suffice.
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author
Rodin, Adam LU and Magnusson, Patrik
supervisor
organization
course
BUSN79 20201
year
type
H1 - Master's Degree (One Year)
subject
keywords
Financial policy, difference-in-differences, capital structure, static trade-off theory, dynamic trade-off theory
language
English
id
9023721
date added to LUP
2020-08-21 14:08:14
date last changed
2020-08-21 14:08:14
@misc{9023721,
  abstract     = {{Mixed support regarding firm capital structure reaction to the Tax Cut and Jobs Act is found. In the main difference-in-differences estimation, support is found for the predictions of trade-off theory after the inclusion of control variables aiming to capture shareholder distribution and capital structure optimization. These results do not prove robust to a more granular matching procedure. A unique contribution is made through the results indicating that even large tax changes may be unable to provoke a downward reaction in leverage ratios. Further, this study exemplifies that to draw meaningful conclusions from policy changes on taxes, standard difference-in-differences estimations may not suffice.}},
  author       = {{Rodin, Adam and Magnusson, Patrik}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The Tax Effect on Capital Structure: An empirical investigation of tax shield utilization following the Tax Cuts and Jobs Act}},
  year         = {{2020}},
}