Shane Heitzman (USC; Google Scholar) & Michelle Hanlon (MIT; Google Scholar), Limitations on Interest Deductibility and Corporate Financial Policy: 

The Tax Cut and Jobs Act of 2017 (TCJA) disallows tax deductions for interest costs exceeding 30% of profits. Recent studies document either very large or no debt responses. We hypothesize that targeted firms already face strong incentives to de-lever through falling marginal tax benefits (e.g., net operating loss rules) and rising marginal costs (e.g., loan covenants). Consistent with intuition and legislators' assertions that interest exceeding 30% of profits is an indication of over-leverage, the firms in our sample reduce debt in response to high interest-to-profit ratios over a 28-year period preceding the TCJA. 

After the TCJA, firms subject to the 30% tax rule reduce debt modestly more than before the TCJA, but only when they have a low need for external financing. We conclude that the limitation on interest deductibility had a modest effect on financing decisions, concentrated in firms in which excess interest plausibly poses the least risk.

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