TAXATION AND CORPORATE DEBT: ARE BANKS ANY DIFFERENT?

Abstract

Variation in the responsiveness of firms to corporate tax incentives toward debt finance is important for understanding the presumed effects of the debt bias on macro-financial stability. This holds especially for the difference in responsiveness between banks and non-banks. Using a large cross-country micro panel of consolidated firm accounts, we find relatively large responses for the biggest non-financial companies, although these effects are less pronounced as conditional leverage ratios increase. The smallest effects are found for large banks. Results are largely robust for attenuation bias.

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