How much do the tax benefits of debt add to firm value? Evidence from spanish listed firms

  1. José A. Clemente Almendros 1
  2. Francisco Sogorb Mira 2
  1. 1 Universidad Politécnica de Valencia
    info

    Universidad Politécnica de Valencia

    Valencia, España

    ROR https://ror.org/01460j859

  2. 2 Universidad CEU Cardenal Herrera
    info

    Universidad CEU Cardenal Herrera

    Valencia, España

    ROR https://ror.org/01tnh0829

Revue:
Revista de economía aplicada

ISSN: 1133-455X

Année de publication: 2017

Volumen: 25

Número: 74

Pages: 105-129

Type: Article

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D'autres publications dans: Revista de economía aplicada

Résumé

The potentially important impact of taxation on corporate financing decisions is widely recognized despite the fact that the empirical evidence is far from conclusive. In this study, we assess the debt tax benefits of Spanish listed firms throughout the period 2007-2013. Specifically, using a simulation approach, we found the capitalized value of gross interest deductions amounts to approximately 6.4% of firms’ market value, while the net debt benefit (of personal taxes) is estimated at 2.1%, in contrast to the traditional 11.4% (i.e.marginal tax rate times debt). Conversely, the panel data regression approach reveals a 13.6% (34.2%) debt tax shield in terms of firm (debt) value. This evidence supports the view that taxes influence corporate decision-making and that debt makes a reasonable contribution to firm value.

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Francisco Sogorb-Mira acknowledges financial support from Ministry of Economy and Competitiveness research grant ECO2015-67035-P.

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