Corporate Income Taxation, Leverage at Entry, and the Growth of Entrepreneurial Companies

Marco Da Rin, M. Di Giacomo, A. Sembenelli

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We study whether corporate income taxation affects the long-term growth of newly
incorporated companies through its effect on their choice of leverage at entry. We
first document the distribution of initial leverage, which is persistent over several
years. We then find that a decrease in corporate income taxation leads to a sizeable
decrease in leverage at entry. This effect on initial conditions has long-term effects:
an inverted-U relationship exists between leverage at entry and long-term corporate growth, conditional on survival. These effects are economically sizeable, and stronger in countries with better creditor rights and more transparent financial transactions.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages57
Publication statusPublished - 21 Dec 2018

Publication series

NameCentER Discussion Paper


  • Corporate income taxation
  • capital structure
  • entrepreneurial finance
  • corporate growth


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