The Impact of Personal and Corporate Taxation on Capital Structure Choices

This paper empirically analyses whether both personal and corporate taxation have an impact on companies' capital structure decisions. We investigate the effect of the difference in taxation of debt and equity financing on capital structures. Our empirical results, based on a comprehensive panel of European firm-level data, suggest that a higher tax benefit of debt has the expected significant positive impact on a company's financial leverage. Particularly, we find evidence that the capital structures of smaller companies respond more heavily to changes in the tax benefit of debt. Additional analysis confirms that not only corporate taxes are relevant for corporate financial planning, but variation in capital income tax rates at the shareholder level implicates significant capital structure adjustments as well. Moreover, we find substitutive relationships between non-debt tax shields and the effect of the corporate tax rate on capital structures. --Capital Structure,Corporate Income Tax,Personal Income Tax,Firm-Level Data

The impact of personal and corporate taxation on capital structure choices

This paper empirically analyses whether both personal and corporate taxation have an impact on companies' capital structure decisions. We investigate the effect of the difference in taxation of debt and equity financing on capital structures. Our empirical results, based on a comprehensive panel of European firm-level data, suggest that a higher tax benefit of debt has the expected significant positive impact on a company's financial leverage. Particularly, we find evidence that the capital structures of smaller companies respond more heavily to changes in the tax benefit of debt. Additional analysis confirms that not only corporate taxes are relevant for corporate financial planning, but variation in capital income tax rates at the shareholder level implicates significant capital structure adjustments as well. Moreover, we find substitutive relationships between non-debt tax shields and the effect of the corporate tax rate on capital structures

Interdependencies between Elements of Governance and Auditing : Evidence from Germany

This study is the first to examine empirically the relation between audit fees, client and governance attributes in Germany. Auditing is an essential element in the system of corporate governance. Further elements include internal control institutions and management compensation. All these elements of corporate governance are designed to reduce agency problems and information asymmetries. Therefore, interdependencies between these instruments are likely to exist. This study differs from existing research on the association between audit fees and governance institutions as it explicitly considers the German governance regime with its two-tier board system. Using data from German stock market companies, we examine whether governance elements complement or substitute the monitoring role of auditing. After adjustments for size effects, the regression results suggest that the ratio of bonus to total payments as well as the existence of an audit committee significantly lower audit fees

How do employment tax credits work? : an analysis of the German inheritance tax

Employment tax credit programs have been repeatedly used during economic crises, although their usefulness is empirically contestable. The objective of this paper is to quantify the tax effects of employment tax credit programs. A recent revision of the German inheritance tax law provides an eminent opportunity to analyze the effects caused by such a preferential treatment. The tax liability depends on a company’s future employment expenses. Hence, we use micro-level data of realized business transfers from the German Inheritance Tax Statistic and combine them with a simulation of the future development of employment over the relevant time-horizon. We identify the magnitude of tax reductions granted to business transfers under a preferential treatment. Further, we demonstrate that these reductions are considerably larger in times of economic growth. Our findings also suggest that employment tax credits have pro-cyclical effects and specifically foster transfers between unrelated parties. Finally, the preferential treatment of business transfers does not provide incentives to increase employment

Secreted Frizzled-related protein-1 is a negative regulator of androgen receptor activity in prostate cancer

Secreted Frizzled-related protein-1 (sFRP1) associates with Wnt proteins and its loss can lead to activation of Wnt/β-catenin signalling. It is frequently downregulated in cancer, including prostate cancer, but its function in prostate cancer is unclear because it can increase proliferation of prostate epithelial cells. We investigated the function of sFRP1 in androgen-dependent prostate cancer and found that sFRP1 inhibited androgen receptor (AR) transcriptional activity. In addition, sFRP1 inhibited the proliferation of androgen-dependent LNCaP cells but not of an androgen-independent subline LNCaP-r, suggesting a role in androgen-dependent growth. The inhibition of AR by sFRP1 was unaffected by co-expression of Wnt3a, stabilised β-catenin or β-catenin shRNA, suggesting it does not involve Wnt/β-catenin signalling. Wnt5a also inhibited AR and expression of Wnt5a and sFRP1 together did not further inhibit AR, suggesting that Wnt5a and sFRP1 activate the same signal(s) to inhibit AR. However, sFRP1 inhibition of AR was unaffected by inhibitors of kinases involved in Wnt/Ca2+ and Wnt/planar cell polarity non-canonical Wnt signalling. Interestingly, the cysteine-rich domain of sFRP1 interacted with Frizzled receptors expressed in prostate cancer cells, suggesting that sFRP1/Frizzled complexes activate a signal that leads to repression of AR. Taken together, these observations highlight the function of β-catenin-independent Wnt signalling in the control of AR activity and provide one explanation for sFRP1 downregulation in prostate cancer