Compensation theory holds that executive aggression is related to both the level and riskiness of inside debt. However, previous researchers only have examined the level of inside debt. We provide an inside debt metric that is conceptually superior to previously used metrics as it incorporates...

We provide a tradeoff model of the capital structure that allows leverage to be a function of a firm’s choice of tax aggressiveness. The model’s testable implications are supported empirically. Debt use is inversely related to corporate tax aggression for most firms, and the relation is...