We use a multitude of tax reforms across the Organisation for Economic Co-Operation and Development (OECD) countries as natural experiments to estimate the market value of the tax benefits of debt financing. We report time-series evidence that tax reforms are followed by large changes in the value of corporate equity. However, the impact of tax reforms is greatly mitigated by the presence of leverage. The value of debt tax savings is greater among top taxpayers, among highly profitable firms, and in countries where tax laws are more strongly enforced. Importantly, the value of debt tax savings is in line with the benchmark implied by a traditional approach.
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