The influence of non-debt tax shields on the interest coverage ratio: evidence from S&P 500 companies
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Key Points
To explore the impact of depreciation-based non-debt tax shields on firms' ability to cover interest payments, particularly in relation to leverage levels.
Analyzed a balanced panel of 255 non-financial S&P 500 firms from 2019 to 2024.
Estimated a dynamic interest coverage ratio model using a two-step system GMM estimator.
Included key variables like depreciation tax shields, leverage, firm size, and revenue growth in the analysis.
Depreciation-based non-debt tax shields positively affect the interest coverage ratio.
The benefit from these tax shields diminishes as leverage increases.
Larger firms showed reduced interest coverage, while revenue growth improved it.