Date of Award

5-1-2015

Degree Type

Report

Degree Name

Master of Science (MS)

Department

Economics and Finance

Abstract

This paper analyzes the relationship between global corporate tax rates and leverage ratios. Theory suggests that firms facing a higher tax rate will have more debt, in order to maximize the effect of the tax savings provided by interest payments. This paper analyzes corporations around the world, including companies based in the United States. I show through this data that tax rates and leverage ratios do, in fact, have a positively correlated relationship. The high-leverage, high-tax firms should also have lower interest coverage ratios, due to the fact that they will pay more in interest because they hold more debt. These results indicate that the use of leverage as a tax benefit is upheld by firms in general.

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