The influence of taxes on corporate financing and investment decisions against the background of the German tax reforms

This paper analyses the influence of taxes and the 2000 tax reform-induced tax changes on the financing and investment decisions of a sample of German listed companies over the years from 1996 to 2005. In contrast to the perception of the German government, our results do not support the notion that companies deliberately adjust their financial structures in order to reduce their corporate tax payments. Moreover, this study finds that market opportunities and market pressures have a far larger influence on investment decisions than on tax considerations. In this context, no evidence is found for the notion that tax cuts result in a higher investment activity that might stimulate economic growth and reduce the high unemployment rate in Germany. Against the background of these findings, it seems thus doubtful whether the recent tax reform will be able to reach its objectives.