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Debt shifting and ownership structure

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  • Schindler, Dirk
  • Schjelderup, Guttorm

Abstract

Previous theoretical studies on the debt shifting behavior of multinationals have assumed affiliates of multinationals to be wholly owned. We develop a model that allows a multinational firm to determine both the leverage and ownership structure in affiliates endogenously. A main finding is that affiliates with minority owners have less debt than wholly owned affiliates and therefore a less tax-efficient financing structure. This is due to an externality that arises endogenously in our model, where costs and benefits of debt shifting are shared asymmetrically between minority and majority owners. Our findings provide a theory framework for recent empirical findings.

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Bibliographic Info

Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 56 (2012)
Issue (Month): 4 ()
Pages: 635-647

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Handle: RePEc:eee:eecrev:v:56:y:2012:i:4:p:635-647

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Web page: http://www.elsevier.com/locate/eer

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Keywords: Multinationals; Tax-efficient financing structures; Minority ownership;

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Cited by:
  1. Andreas Haufler & Marco Runkel, 2008. "Firms' financial choices and thin capitalization rules under corporate tax competition," Working Papers 0815, Oxford University Centre for Business Taxation.
  2. Andreas Hau fler & Mohammed Mardan, 2013. "Cross-border loss offset can fuel tax competition," Working Papers 1310, Oxford University Centre for Business Taxation.
  3. Schindler, Dirk & Schjelderup, Guttorm, 2014. "Transfer Pricing and Debt Shifting in Multinationals," Discussion Papers 2014/22, Department of Business and Management Science, Norwegian School of Economics.
  4. Marko Köthenbürger & Michael Stimmelmayr, 2013. "Taxing Multinationals in the Presence of Internal Capital Markets," EPRU Working Paper Series 2013-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  5. Koethenbuerger, Marko & Stimmelmayr, Michael, 2014. "Corporate deductibility provisions and managerial incentives," Journal of Public Economics, Elsevier, vol. 111(C), pages 120-130.

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