We examine the proposition that the expected value of future interest tax shields affects firms' preferences for long‐term vs. short‐term debt. We extend prior work that has focused on incremental debt issuances (Newberry and Novack 1999; Guedes and Opler 1996) by examining the maturity structure reflected in the portfolio of firms' outstanding debt at year‐end. Thus, our study tests a wider range of capital structure activities and includes a much larger sample of firms than examined in prior studies. Our results indicate that firms with high marginal tax rates use more long‐term debt than do firms with low marginal tax rates. These findings are consistent with the existence of tax clienteles for financing with debt of different maturities.
