Taxation, Corporate Growth and Financial Policy

This paper presents a coporate growth model in which investment and financial policies are simultaneously determined under the constraint that the corporate financial structure affects its borrowing rate of interest. Also, the effects of taxation and the degree of the bank-borrower (corporate) relation on investment are examined. As a result, it is shown that close bank-corporate relationship raises the corporate growth rate and its debt-capital ratio, and that the effect of tax rates on the growth rate become ambiguous due to the indirect effects through changes of financial policies.