Costs of debt, tax benefits and a new measure of non-debt tax shields: examining debt conservatism in Spanish listed firms

Costes de la deuda, beneficios fiscales y nueva medida de escudos fiscales alternativos a la deuda: análisis del conservadurismo de la deuda en las empresas cotizadas españolas

Authors

  • José A. Clemente Almendros Department of Business Organization, Polytechnic University of Valencia - Alcoy Campus; Alcoy (Alicante), Spain
  • Francisco Sogorb Mira Department of Economics and Business, CEU Cardenal Herrera University, Elche (Alicante), Spain
DOI: https://doi.org/10.1016/j.rcsar.2018.05.001
Keywords: Capital structure, Costs of debt, Kink, Rating, Non-debt tax shields

Abstract

In spite of the fact that there is empirical evidence that debt tax benefits add to firm value, additional research is needed to explain the apparently conservative debt policy of many firms. This study examines whether the costs of debt and non-debt tax related issues might shed some light on the apparent “conservative leverage puzzle” for Spanish listed firms throughout the period 2007–2013. Specifically, we compare the costs of financial distress with the potential tax benefits of debt. In addition, we test whether debt conservativeness, measured by the kink, is explained by different costs of debt and non-debt tax shields. Our findings suggest that the most conservative Spanish listed firms may not be acting sub-optimally with respect to the tax advantage of debt financing. Furthermore, the results obtained are consistent with the belief that debt costs might offset the tax benefits stemming from debt financing, and debt and non-debt tax shields could act as substitutes.

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Published
01-07-2018
How to Cite
Clemente Almendros, J. A., & Sogorb Mira, F. (2018). Costs of debt, tax benefits and a new measure of non-debt tax shields: examining debt conservatism in Spanish listed firms: Costes de la deuda, beneficios fiscales y nueva medida de escudos fiscales alternativos a la deuda: análisis del conservadurismo de la deuda en las empresas cotizadas españolas. Revista De Contabilidad - Spanish Accounting Review, 21(2), 162–175. https://doi.org/10.1016/j.rcsar.2018.05.001
Issue
Vol. 21 No. 2 (2018)
Section
Articles

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