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This article investigates financing practices across firms in the forest products industry by studying the relationship between debt and taxes hypothesized in finance theory. In testing the theoretical relationship between taxes and capital structure for 20 publicly traded forest industry firms for the years 1994–2003, we find a negative relationship between profitability and debt, a positive relationship between nondebt tax shields and debt, and a negative relationship between firm size and debt. All three results run counter to theoretical expectations. Results indicate that, controlling for size, firms in the forest products industry with higher market valuations and pretax earnings used more conservative financing strategies. Also, the article develops a dynamic panel model with fixed effects for each firm and residualization to address issues of multicollinearity.
Forest Science is a peer-reviewed journal publishing fundamental and applied research that explores all aspects of natural and social sciences as they apply to the function and management of the forested ecosystems of the world. Topics include silviculture, forest management, biometrics, economics, entomology & pathology, fire & fuels management, forest ecology, genetics & tree improvement, geospatial technologies, harvesting & utilization, landscape ecology, operations research, forest policy, physiology, recreation, social sciences, soils & hydrology, and wildlife management.