The Impact of Thin Capitalization Rule on Capital Structure

DOI

10.2991/icbmr-18.2019.15How to use a DOI?

Keywords

thin capitalization rule, tax return data, related party debt

Abstract

Debt financing is more favorable than equity financing due to the deductibility of the interest while the dividend is nondeductible in corporate taxation. This paper analyzes the impact of the implementation of Thin Capitalization Rule, that limits the deductibility of the interest expense through limiting the debt to equity ratio, on the choice of capital structure of the company. In this study, we use corporate tax return data (SPT) from the fiscal year 2010 to 2017. Using panel data regression, the results of the study show that the Thin Capitalization Rule reduces the use of debt in the capital structure. This study also shows an indication that the enactment of this rule increases the use of related party debt in the capital structure.

Copyright

© 2019, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Venantius Budi Jatmiko
AU  - Zaafri Ananto Husodo
PY  - 2019/03
DA  - 2019/03
TI  - The Impact of Thin Capitalization Rule on Capital Structure
BT  - Proceedings of the 12th International Conference on Business and Management Research (ICBMR 2018)
PB  - Atlantis Press
SP  - 87
EP  - 92
SN  - 2352-5428
UR  - https://doi.org/10.2991/icbmr-18.2019.15
DO  - 10.2991/icbmr-18.2019.15
ID  - Jatmiko2019/03
ER  -