Empirical Studies in Corporate Finance, Taxation and Investment
Abstract: This thesis consists of four self-contained essays. Essay 1 extends previous research focusing on firms' discrete external financing decision by adapting an estimation procedure accommodating both fixed effects and a lagged dependent variable. This makes it possible to establish the nature of the dependence. We find that there is a smoothing of financing, even when controlling for unobserved heterogeneity, but also that unobserved heterogeneity plays a significant explanatory role. Essay 2 (with Magnus Lundin) uses between-firm variation in the user cost of capital to provide user cost elasticities for investments in machinery and equipment for Swedish firms. We use two different reduced form specifications, an accelerator model, and an error correction model. The results from the two models are similar. We find estimates of the user cost elasticity in the range of -0.3 to -0.5 comparable to a user cost of capital elasticity to -0.31 from a previous study using an error correction model on Swedish macro data. Essay 3: (with Tobias Lindhe) suggests a simple method for approximating the corporate marginal tax rate (MTR), estimated as the firm-specific probability of having positive taxable income times the statutory tax rate. We do also simulate a MTR according to the Swedish rules of carry losses forward, and estimate a MTR capturing the effect of underutilization of tax allowances, a relevant feature of Swedish firms' behavior. The proxy we put forward are comparable to the other proxies, and seems to perform at least as good as these in explaining firm's debt policy decision. Essay 4 investigates if substantial changes in financial policy are driven by adjustments towards a target debt ratio. We find that both profitability and the marginal tax rate proxies for the difference between actual leverage and the target leverage. The results suggest that, although past profits and the marginal tax rate are negatively related to observed target ratios, firms' financial choices move them towards the target capital structure.
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