The new regime limiting deductibility of financing expenses introduced in the Corporate Income Tax Code in 2013 changed the tax framework for corporate financing. Historically, the tax favors the financing of economic activity through debt, the so-called debt bias, led to over-indebtedness of national firms with harmful effects on the economy, aggravated in a context of increasing international competition. This study investigates the impact of the new tax framework for corporate financing on firms' leverage, focusing on the analysis of the trienniums 2010-2012 and 2014-2016, pre- and post-alteration, respectively. Our findings suggest that after 2013, the firms covered by the new regime adjusted their capital structures, which means they reduced their average leverage levels. Moreover, we find a negative relationship between leverage and average effective tax rate which, contrarily to what would be expected, was not weakened, but slightly reinforced, by the new regime.

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corporate income tax,capital structure,leverage,financing expenses

• Physical Sciences - Natural Sciences