Business, Management and Accounting
4 years ago

New study reveals optimal debt levels for companies under tax laws

Journal of Financial Economics
Optimal capital structure under corporate and personal taxation
Harry DeAngelo, Ronald W. Masulis

Paper Summary

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The article explores how companies decide on the best mix of debt and equity to use for financing, taking into account both corporate and personal taxes. It shows that certain tax benefits for companies, like depreciation and investment tax credits, can influence their decisions on how much debt to take on. The research suggests that each company has a unique optimal level of debt, which can vary over time and across different companies. This model helps predict how companies' capital structures may change and evolve.