Corporate Financing Decisions and Non-Debt Tax Shields: Evidence from Italian Experiences in the 1990s

Authors: Bernasconi, Michele¹; Marenzi, Anna²; Pagani, Laura³

Source: International Tax and Public Finance, Volume 12, Number 6, November 2005 , pp. 741-773(33)

Publisher: Springer

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Abstract:

Between 1995 and 1999, Italy experienced three episodes of fiscal reform during which different categories of non-debt tax shields were introduced, including a classical investment tax credit, a system of dual income taxation, and an investment tax credit restricted to equity financed investments. Using the balance sheets of a large sample of Italian companies, we construct a data set which allows us to evaluate the impact of the different fiscal interventions. We apply MacKie-Mason's (1990) method to study incremental financing decisions using discrete choice analysis. The analysis shows that the measures introduced were successful in reducing the advantage of debt financing relative to equity financing. We relate the findings to the current literature on the determinants of capital structure.

Keywords: non-debt tax shields; investment tax credits; dual income tax

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s10797-005-2914-1

Affiliations: 1: Email: mbernasconi@eco.uninsubria.it 2: Email: amarenzi@eco.uninsubria.it 3: Email: lpagani@eco.uninsubria.it

Publication date: 2005-11-01