What question did this study set out to answer?

The aim is to investigate the impact of investment-related tax shields on the capital structure of firms, focusing on their influence on debt usage.

Taxes, Investment-Related Tax Shields and Capital Structure.

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Randomized trial examines how investment tax shields influence capital structure decisions, suggesting a significant substitution effect.

The aim is to investigate the impact of investment-related tax shields on the capital structure of firms, focusing on their influence on debt usage.
Analyzed cross-sectional data to support the substitution effect hypothesis.
Controlled for factors such as the probability of losing deductibility of tax shields and debt securability effects.
Examined production technology effects and other previously identified determinants of capital structure.
Found strong empirical support for the substitution effect between investment-related tax shields and debt levels.
Identified significant interactions with the probability of losing immediate tax shield deductibility.
Confirmed that firms with higher tax shields utilize less debt in their capital structure.

Dhaliwal et al. (1992) studied this question.

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