Debt Tax Shields and Capital Structure: Panel Evidence from Non-Financial Listed Firms in Chile, Colombia, Mexico, and Peru, 2013–2023

This study examines the association between the debt tax shield (DTS) and corporate leverage in 61 listed non-financial firms from Chile, Colombia, Mexico, and Peru during 2013–2023, using a perfectly balanced panel of 671 firm-year observations obtained from Bloomberg. The DTS is measured as interest expense multiplied by the effective income tax rate and scaled by total assets. Fixed-effects and random-effects panel models are estimated and complemented by a correlated random-effects (Mundlak) specification, a liquidity-augmented model, and several robustness checks. The contemporaneous DTS is positively associated with leverage, although the magnitude and statistical significance of the coefficient are sensitive to model specification. In particular, the relationship becomes statistically insignificant when the DTS is lagged and increases substantially after winsorization, while remaining positive and statistically significant when the DTS is reconstructed using statutory corporate income tax rates and positive at marginal significance when a non-debt tax shield control is included. The Mundlak decomposition further shows that the association is driven primarily by persistent between-firm differences rather than by within-firm changes over time. These findings indicate that the DTS–leverage relationship should be interpreted as a contemporaneous association rather than as evidence of a causal financing effect. The study contributes to the limited empirical evidence on debt-related tax incentives and capital structure in Latin American listed firms and highlights the importance of distinguishing persistent cross-sectional heterogeneity from dynamic financing behavior.