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Taxes, Governance, and Debt Maturity Structure: International Evidence

Lasfer, M. ORCID: 0000-0003-2338-672X & Kashefi Pour, E. (2018). Taxes, Governance, and Debt Maturity Structure: International Evidence. Journal of International Financial Markets, Institutions and Money, 58, pp. 136-161. doi: 10.1016/j.intfin.2018.09.011


We provide a cross-country evidence on the impact of corporate and personal income taxes, and corporate governance systems on debt maturity structures and leverage using a comprehensive sample of 212,642 firm-year observations based on a sample of 19,573 firms from 24 OECD countries over the period 1990 to 2015. We find longer debt maturities, higher leverage, and, in a dynamic setting, a greater propensity to decrease short-term debt, in countries with high investor protection and where the potentials for debt tax shields and after-tax return of investors are high. Our results imply that when investors are protected, firms tend to have optimal debt maturities to maximise the gains from tax shields and minimise the tax cost of equity. In contrast, in low protection countries, investors prefer their firms to opt for low debt that is mainly short-term to mitigate the risk-shifting and debt overhang problems even if this entails forgoing the debt tax shields. Our results hold for various robustness checks including the hierarchical linear model specification, which corrects for a number of OLS biases.

Publication Type: Article
Additional Information: © 2018, Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Publisher Keywords: Debt maturity; Debt overhang; Risk-shifting; Signalling; Classical and imputation tax systems
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
[thumbnail of Kashefi-Pour Eilnaz and Meziane Lasfer Market Quotation and Debt Maturity Structure Oct 2018 - Accepted.pdf]
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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