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Agency and Tax Explanations of Security Issuance Decisions
Author(s) -
Walsh Eamonn J.,
Ryan James
Publication year - 1997
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00144
Subject(s) - equity (law) , business , agency cost , debt , agency (philosophy) , accounting , arbitrage , economics , finance , public economics , monetary economics , actuarial science , corporate governance , philosophy , epistemology , political science , law , shareholder
This paper is an empirical examination of the relative roles of agency and tax considerations in corporate debt versus equity issuance decisions. Unlike earlier work, we conduct our tests on a sample of UK firms since the UK system of taxation does not create an obvious tax advantage to debt and hence affords an opportunity to evaluate the relevance of tax arbitrage considerations. We find that both tax and agency issues are important determinants of security issuance decisions. In addition, we demonstrate that our specification is robust to a variety of alternative explanations which have appeared in the empirical literature.