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Title How corporate tax affects leverage, leasing and systematic risk: Evidence from the UK corporation tax reform of 1984 / Imanueli Daniel Mnzava.
Name Mnzava, Imanueli Daniel .
Abstract This thesis investigates the impact of corporation tax on leverage, systematic risk and leasing by using the changes in corporation tax effected through the corporation tax reform of 1984. I also investigate whether there was any relationship between ownership structure of a firm and its response to the 1984 reform. Whereas theoretical models suggest that corporation tax influences corporate financial policy, extant empirical findings provide inconclusive evidence to support the tax theories of capital structure. The inconclusive findings from earlier studies are attributable to the methodology used and a failure to perfectly isolate the impact of corporation tax from that of other variables that affect leverage. I effectively curb this deficiency by analysing the effects of corporation tax on leverage, equity beta and leasing around the corporation tax reform period by using both cross-sectional and time series analysis. My empirical results show that the corporation tax reform of 1984 affected debt-equity ratios negatively. These findings imply that corporation tax influence firm's capital structure decision. Furthermore, there is evidence that taxable profits increased significantly during the reform period. Effective corporation tax rates and non-debt tax shields are found to substitute each other and both have a significant influence on firms' capital structure decisions. Similar to the findings of previous UK studies, leasing and debt financing are found to be substitutes. The results show further that the corporation tax reform of 1984 increased the attractiveness of leasing to the UK firms. Sector-based-analysis shows that in general UK manufacturing firms have high lease rate than other sectors analysed. Empirical findings show also that effective corporation tax rate has significant effect in firm's systematic risk as measured by equity beta.
Publication date 2003
Name University of Strathclyde. Dept. of Accounting and Finance.
Thesis note Thesis Ph. D University of Strathclyde 2003 T10687
URI http://ethos.bl.uk/ProcessSearch.do?query=273841

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