Essays in corporate finance and taxation

Thesis (Ph. D.)--Massachusetts Institute of Technology, Dept. of Economics, 2003.Includes bibliographical references.This dissertation is a collection of three essays which address several questions in corporate finance and taxation. The first essay uses a panel dataset of balance sheet and income information, taken from the tax returns of U.S. corporations, to study the relationship between bank competition and the financing of firms. Over the period 1987 to 1998, I find that in more competitive banking markets firms use less outside debt and more inside debt and equity than firms in less competitive banking markets. The evidence is consistent with models in which market power provides banks with implicit equity stakes in their borrowers, making banks more willing to begin lending relationships with borrowers whose projects are characterized by substantial asymmetric information or delayed payoffs. In the second essay, I reconsider the distortionary impact that the U.S. corporate and personal tax systems may have on organizational form choices by firms. I show that when Project choice is endogenous and when one considers the non-linear nature of the corporate tax schedule, it is not necessarily inefficient for a firm to choose to be a pass-through entity rather than a non-pass-through entity in response to differences in after-tax returns between the two entity types. I provide empirical evidence that is consistent with this theoretical point by examining the behavior of a sample of S corporations and C corporations. The third essay is co-authored with Daniel Bergstresser and James Poterba. In this essay, we use a panel dataset of mutual fund characteristics and returns from Morningstar, Inc. to develop measures of the effective capital gains tax burden mutual fund investors face on unrealized capital gains in mutual funds. We explore the determinants of the effective capital gains tax burdens and the impact they have on net inflows of savings into mutual funds.by Rebecca Elizabeth Zarutskie.Ph.D