Economics Seminar（2014-09）

Topic: Collateral, Taxes, and Leverage

Speaker:Shaojin Li

Affiliation: Shanghai University of Finance and Economics

Time:Tuesday, 22 April. 14:00-15:30pm

Location:Room217, Guanghua Building 2

Abstract：

We quantify the importance of contracting frictions versus taxes for rms' capital structures. We estimate a dynamic contracting model in which a rm seeks debt nancing from an intermediary and is subject to taxation. Because the rm can renege on the nancing contract, the optimal contract is self-enforcing, so collateral constraints arise endogenously. Using data from rms in several industries, we nd that a model without taxes ts the data as well a model with taxes. Quantitatively, taxes have only a limited e ect on leverage. The model can detect changes in the value of collateral underlying a natural experiment concerning asset repossession.

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