Corporate taxation and financing decisions in Italy: a modified pecking order approach

The aim of this paper is to measure the relationship between fiscal variables and companies debt choices in Italy using an empirical representation of the modified pecking order model, where both trade-off and pecking order theories are nested. Main results suggest that: fiscal effects are significant and robust explanations of firms’ financial behavior. Moreover, both the two routes through which corporate taxation may affect financing decisions - on the one hand the relative price of debt and equity finance, and on the other, net-of-tax cash flow - turn out to be significant