Using large shareholder characteristics to analyze investor-level tax effects on corporate leverage

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Abstract

Using a sample of public European companies and multiple countries’ tax rate changes, we examine the impact of shareholder-level tax incentives on corporate capital structure. We conjecture and find that the largest shareholder’s tax incentive for debt positively influences leverage. We also find that the second-largest shareholder’s tax incentive for debt is incrementally relevant for leverage. Tax incentive heterogeneity between the two largest shareholders reduces the positive impact of the largest shareholder’s tax incentive on leverage. Finally, we document that the relevance of the largest shareholder’s tax incentive for capital structure decisions is increasing in the level of voting rights power.

Keywords: Capital Structure, Leverage, Investor Taxation, Heterogeneity, Ownership Power

Authors’ individual contribution: Conceptualization — P.P.; Methodology — M.B.; Software — M.B.; Validation — M.B.; Formal Analysis — J.H. and P.P.; Investigation — J.H. and P.P.; Resources — J.H.; Data Curation — M.B.; Writing — Original Draft — M.B.; Writing — Review & Editing — J.H. and P.P.; Visualization — M.B.; Supervision — P.P.; Project Administration — P.P.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G32, G34, H25

Received: 20.08.2025
Revised: 22.10.2025; 17.11.2025
Accepted: 27.11.2025
Published online: 01.12.2025

How to cite this paper: Babbel, M., Hundsdoerfer, J., & Pronobis, P. (2025). Using large shareholder characteristics to analyze investor-level tax effects on corporate leverage. Corporate Ownership & Control, 22(4), 46–62. https://doi.org/10.22495/cocv22i4art4