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Capital structure of firms when taxes are removed

Capital structure of firms when taxes are removed Purpose – The purpose of this paper is to further the understanding of the non-tax benefits of debt. Design/methodology/approach – This paper analyzes the capital structure of firms when taxes are removed by analyzing firms in an emerging market, Kuwait, where personal and corporate taxation does not exist. Findings – The leverage of firms in markets with no taxes are affected by the same leverage factors that affect firms where taxes are present. Non-tax benefits are economically significant and are almost 16 percent of firm value for the average leveraged firm. Practical implications – Given such a finding and the positive effect of debt on firm value, there should be policies to facilitate bank lending and more efficient access to credit for firms. Originality/value – The paper provides an estimate of the size of the non-tax benefits of debt. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic and Administrative Sciences Emerald Publishing

Capital structure of firms when taxes are removed

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References (50)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1026-4116
DOI
10.1108/JEAS-10-2013-0040
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to further the understanding of the non-tax benefits of debt. Design/methodology/approach – This paper analyzes the capital structure of firms when taxes are removed by analyzing firms in an emerging market, Kuwait, where personal and corporate taxation does not exist. Findings – The leverage of firms in markets with no taxes are affected by the same leverage factors that affect firms where taxes are present. Non-tax benefits are economically significant and are almost 16 percent of firm value for the average leveraged firm. Practical implications – Given such a finding and the positive effect of debt on firm value, there should be policies to facilitate bank lending and more efficient access to credit for firms. Originality/value – The paper provides an estimate of the size of the non-tax benefits of debt.

Journal

Journal of Economic and Administrative SciencesEmerald Publishing

Published: May 18, 2015

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