The Impact of Integrated Tax System on the Capital Structure and Effective Tax Rates of Firms in Taiwan

10.6292/AFPF.2011.04.01

Ken Hung；Philip S. Russel；Yin-Chou Chao

Integrated tax system ； Effective tax rates ； Double taxation ； Tax reform ； Capital structure

Advances in Financial Planning and Forecasting

4期（2011 / 03 / 01）

1 - 24

英文

This paper examines the impact of integrated tax system, introduced in Taiwan in 1998, by analyzing the effect on capital structure and effective tax rates for the period 1996-2001 for a sample of 257 firms listed on Taiwan Securities Exchange. The results show that after the integration of the tax system, the average effective tax rate dropped as expected while the debt ratio, surprisingly, increased. Using regression models, we also examine the determinants of capital structure and effective tax rates. We find that capital structure is significantly related to non-debt tax shield, collateral, and growth opportunities while the relationship to effective tax rate and profitability is weak. The regression model on determinants of effective tax reveals that effective tax rate is impacted by capital structure, variation of earnings, research and development expenditure, firm size and profitability.

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