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Debt Shifting and Ownership Structure

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  • Dirk Schindler

    ()
    (Department of Economics, University of Konstanz, Germany)

  • Guttorm Schjelderup

    ()
    (Department of Finance and Management Science, Norwegian School of Economics and Business Adminstration and CESifo, Bergen, Norway)

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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Paper provided by Department of Economics, University of Konstanz in its series Working Paper Series of the Department of Economics, University of Konstanz with number 2011-35.

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Length: 26 pages
Date of creation: 20 Sep 2011
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Handle: RePEc:knz:dpteco:1135

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Keywords: Multinationals; tax-efficient financing structures; monority owner-ship;

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Cited by:
  1. Andreas Haufler & Mohammed Mardan, 2013. "Cross-Border Loss Offset Can Fuel Tax Competition," CESifo Working Paper Series 4089, CESifo Group Munich.
  2. Andreas Haufler & Marco Runkel, 2008. "Firms’ Financial Choices and Thin Capitalization Rules under Corporate Tax Competition," CESifo Working Paper Series 2429, CESifo Group Munich.
  3. Koethenbuerger, Marko & Stimmelmayr, Michael, 2014. "Corporate deductibility provisions and managerial incentives," Journal of Public Economics, Elsevier, vol. 111(C), pages 120-130.
  4. Marko Köthenbürger & Michael Stimmelmayr, 2013. "Taxing Multinationals in the Presence of Internal Capital Markets," CESifo Working Paper Series 4353, CESifo Group Munich.
  5. Dirk Schindler & Guttorm Schjelderup, 2013. "Transfer Pricing and Debt Shifting in Multinationals," CESifo Working Paper Series 4381, CESifo Group Munich.

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