Premium
AN IMPLICIT CLIENTELE TEST OF THE RELATIONSHIP BETWEEN TAXATION AND CAPITAL STRUCTURE
Author(s) -
Grier Paul,
Strebel Paul
Publication year - 1983
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1983.tb00323.x
Subject(s) - leverage (statistics) , monetary economics , capital structure , debt , equity (law) , business , stock (firearms) , incentive , economics , financial economics , financial system , finance , microeconomics , mechanical engineering , machine learning , computer science , political science , law , engineering
This paper presents a test for the existence of high and low tax bracket debt clienteles. The test generates some evidence consistent with the implication of debt clientele theory that over time, firms' debt ratios should vary with the relative tax incentives for investors to hold debt. The results, however, do not support the existence of extreme financial leverage clienteles. Rather they are consistent with an incomplete equity market: low tax bracket investors hold the stock of highly levered firms and high tax bracket investors hold the stock of the low leverage firms.