Escape clauses, where small firms are exempt from particular tax rules, is a crucial feature of a number of corporate tax schemes, but creates incentives to avoid taxation by manipulating the measures that determine inclusion. We evaluate the impact of thin capitalization rules, which commonly...

We estimate firms' cash flow sensitivity of cash to empirically test how the financial system's structure and activity level influence their financial constraints. For this purpose we merge Almeida, Campello and Weisbach (2004), a pathbreaking new design for evaluating a firm's financial...

This paper studies the effect of financial constraints and financial distress on accounting restatements; specifically, we empirically analyse whether several firm-specific characteristics-namely, the level of leverage, the cost of debt, and the interest coverage ratio-influence the likelihood...

This paper provides a quantitative review of the empirical literature on the tax impact on corporate debt financing. Synthesizing the evidence from 46 previous studies, we find that this impact is substantial. In particular, the tax rate proxy determines the outcome of primary analyses. Measures...

Conventional discussions of balance sheet management by nonfinancial firms take the set of positive net present value (NPV) projects as given, which in turn determines the size of the firm's assets. The focus is on the composition of equity and debt in funding such assets. In contrast, the...

This paper empirically examines how debt covenants impact the capital structure choices of firms, by utilizing an exogenous accounting based shock to the distance to covenant violation. We find that, on average, the shock to debt capacity had a positive impact on the debt choices of all treated...

Performance sensitive debt (PSD) contracts link the paid coupon to a measure of firm performance. PSD contracts are widely used, especially as corporate bank loans. In a model where a firm has assets in place and the opportunity to invest in a growth option, I analyze how PSD affects...