Faulkender and Smith (2016) find firms operating in countries with higher tax rates tend to use more
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Question:
Faulkender and Smith (2016) find firms operating in countries with higher tax rates tend to use more debt. In years when tax rates are lower, firms are found to decrease leverage levels.
Furthermore, they show firms in all countries borrow less than their full borrowing capacity.
In what respect the above findings are consistent with the prediction of M&M (with tax) theory?
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