The Impacts of Taxation on Capital Structure in BRICS Countries

  • Rajesh Chakrabarti Jindal Global Business School
  • Alexander Gruzin National Research University Higher School of Economics


Capital structure is an indicator of the value of a firm and is a key performance indicator concerning how efficiently a company operates. Debt and leverage influence a company’s investment risks and influence the rate of return required by investors. Therefore, decisions affecting capital structure choice have crucial long-term effects.

The aim of this study is to determine the effects of corporate tax rates on capital structure in public nonfinancial companies based in BRICS countries. The specific object of our analysis is the evaluation of financial leverage as a proportion of debt financing based on the amount of total assets. This analysis is carried out on a sample of BRICS companies over the period from 2010 to 2015.

To conduct this research, panel data regression models are employed, including the fixed effects (FE), random effects (RE) and generalised method of moments (GMM) models. Each BRICS country is analysed separately in order to avoid biased estimates due to a host of significant country-specific differences.

The results presented herein indicate that effective tax rate is statistically significant, but the effect of taxation varies across countries. For example, effective tax rate is an important capital structure determinant, and it is significant across all countries. However in analytical terms, this investigation reveals that the most suitable regression model for the majority of BRICS countries is the fixed effects method, although for Russia the most appropriate model is the random effects method. To summarise, three separate hypotheses regarding the interplay of taxation and capital structure have.

This research crucially serves to demonstrate facets of the complexity of the economic situation in the key economies of BRICS countries. The generally-supported hypothesis implies that the higher the corporate tax rate, the more tax benefits the company receives from using a tax shield. The results of this study indicate that contrary to most existing literature, effective tax rate has a negative relationship with the capital structure in Russia, India and South Africa. Moreover, various existing research studies in the field have been validated, and individual aspects of our results serve to alternatively validate the tradeoff and the pecking order theories. The conclusions presented herein regarding the complexities of the interplay between economic indicators between BRICS countries will be essential information in the commercial and academic spheres and anyone concerned with emerging economies.


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Как цитировать
Chakrabarti, R. и Gruzin, A. (2020) «The Impacts of Taxation on Capital Structure in BRICS Countries», Journal of Corporate Finance Research / Корпоративные Финансы | ISSN: 2073-0438, 13(3), сс. 94-110. doi: 10.17323/j.jcfr.2073-0438.13.3.2019.94-110.
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