As Uncertain as Taxes
نویسنده
چکیده
I investigate how the capital structure of firms is affected by uncertainty about the legal outcomes of corporate tax law. I create a simple model in which firms choose to either avoid taxes aggressively or conservatively, based on enforcement of laws and uncertainty about outcomes of the legal process. This theory shows under which conditions firms will avoid conservatively by using debt tax shields and when they will use more aggressive strategies. I suggest multiple novel proxies for the uncertainty about legal outcomes to provide empirical evidence to support the theory. This evidence is a first step towards understanding the effects of uncertainty about the interpretation of existing law on the decisions of companies.
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