Debt bias in corporate financing decisions Overview, implications, comparisons and alternatives.

Abstract

The aim of this work is to analyze the phenomenon of the debt bias occurring because of the deductibility of interests from the taxable income of firms in most tax systems. Because of this, firms are more likely to search for financing resources through debt instead of investing in themselves with resources coming from own interests. In this work an overview of the distortion is given, from the principles of the capital structure theory to the actual phenomenon, up to possible remedies and considerations for the future.