Faculty Scholarship 1994 - Present

Investment-Related Tax Shields and Financial Leverage

The DeAngelo-Masulis tax shield hypothesis predicts that firms with high (low) levels of investment-related tax shields should have low (high) levels of financial leverage. The hypothesis has been tested in several previous studies with conflicting results. Our study presents additional empirical evidence on the DeAngelo-Masulis hypothesis. Our findings indicate that the level of investment-related tax shields and the level of financial leverage are not negatively related.