The Role of Fiscal Considerations in Business Capital Structure: Evidence from Innovative Start-ups
The Role of Fiscal Considerations in Business Capital Structure: Evidence from Innovative Start-ups

Author(s): Valeria BUCCI
Subject(s): Business Economy / Management, Economic policy, Fiscal Politics / Budgeting
Published by: Masarykova univerzita nakladatelství
Keywords: Public Policies; Companies’ Capital Structure; Equity Financing; Innovation; Innovative Start-ups;
Summary/Abstract: A central debate in public policy finance is the role of fiscal considerations in companies’ capital structure. In a fiscal system allowing interest-expenses deductibility, the disparity in the tax treatment of equity and debt could affect financing choices. In order to solve welfare losses, public action should intervene by aligning the fiscal treatment of debt and equity, achieving tax neutrality. Otherwise, public action can be designed in order to affect financing choices indirectly, increasing companies’ attractiveness for new outsider investors. An example of such policies is provided by the Italian Growth Decree, which introduced fiscal incentives for individuals or legal entities investing in innovative start-ups. Using data on young Italian companies, this paper investigates if corporate financing choices have been affected, by one side, by the fiscal benefits due to interest expenses deductibility and, by the other side, by the attractiveness of innovative start-ups for outside investors. The empirical results show that companies decrease the level of equity ratio when the marginal tax rate increases; moreover, due to the possibility for outside investors to obtain fiscal saving, innovative start-ups result more incline to prefer equity financing.

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