The effects of tax reform on the capital structure of Listed firms in Norway : an empirical study

Abstract

The goal of this thesis is to determine how changes in the corporate tax rate affect the capital structures of Norwegian firms, and how such effects can be explained by established economic theories. We have applied propensity score matching, difference-in-differences estimates, and ordinary least squares regressions to determine if the capital structures of Norwegian listed firms have been affected by the recent reductions in the Norwegian corporate tax rate. While our models have found a significant reduction in the development of Norwegian debt to equity ratios compared to the control group during the years 2012 to 2016, we have not been able to isolate these differences to the years where tax reductions have occurred. Furthermore, the small sample of firms, along with macroeconomic factors affecting the Norwegian firms during the time period, make it difficult to conclude any causality between the reductions in corporate tax rate and the changes in capital structure. Considering these issues, we have been unable to determine whether Norwegian corporate behavior most closely resembles the behavior depicted in the trade-off theory, or the behavior depicted in the pecking order theory.