Financing investment spikes in the years surrounding World War I

Leonce Bargeron, David Denis, Kenneth Lehn

Research output: Contribution to journalArticlepeer-review

8 Scopus citations


In the period surrounding World War I, US firms sharply increased investment in fixed assets and working capital to accommodate large increases in demand associated with the war. Concurrently, the US adopted an excess profits tax, which created a tax bias in favor of equity financing. Despite this tax bias, firms in need of external funds largely issued debt, not equity, to finance investment spikes when the excess profits tax was in effect. Further, we find these firms systematically reduced debt after the war, whereas other firms did not. The results support models that link the dynamics of firms’ financing decisions with the dynamics of their investment opportunities and are inconsistent with models that emphasize taxes as a primary determinant of financing decisions.

Original languageEnglish
Pages (from-to)215-236
Number of pages22
JournalJournal of Financial Economics
Issue number2
StatePublished - Nov 2018


  • Capital structure
  • Corporate taxes
  • Financing flexibility
  • Investment spikes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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