Document Type : Research Paper

Authors

• Ali Nassiri Aghdam ¹
• mahtab moradzadeh ²

¹ Allameh Tabataba'i University. Tehran. Iran

² Allameh Tabataba'i University

Abstract

The leverage ratio indicates companies relative reliance on capital and debt. The higher leverage ratios and the more intensive reliance on debt relative to equity, ceteris paribus, increases companies' financial risks. The purpose of this study is to evaluate the effect of income tax and deductible financial costs on companies' leverage ratios. To investigate this issue, companies listed on the Tehran Stock Exchange were studied from 2011 to 2020. Theoretically, the higher the effective tax rate and deductible financial costs, the higher the leverage ratio is. These hypotheses were tested by employing the dynamic panel data model and the generalized least squares (GLS) method. Results show, by accounting for control variables, the effective income tax rate has no significant effect on the leverage ratio, but financial costs hold a positive and significant relationship with the leverage ratio.

Keywords

• Effective tax rate
• financial costs .Leverage ratio
• corporate income tax

Main Subjects

• Tax