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Corporate Taxation, Debt Financing and Foreign Plant Ownership

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  • Christian Keuschnigg

    ()

  • Peter Egger

    ()

  • Wolfgang Eggert

    ()

  • Hannes Winner

    ()

Abstract

This paper compares domestically and foreign-owned plants with respect to their debt-toassets ratio and analyzes to which extent the difference is systematically affected by corporate taxation. To derive hypotheses about influence of corporate taxation on a firm's debt financing we adapt a standard model of taxation and financing decisions of firms for the case of international debt shifting activities of foreign-owned firms. We estimate the average difference between a foreign-owned and a domestically-owned firm's debt ratio, treating the mode of ownership as endogenous. Using data from 32,067 European firms, we find that foreign-owned firms on average exhibit a significantly higher debt ratio than their domestically-owned counterparts in the host country. Moreover, this gap in the debt ratio increases with the host country's statutory corporate tax rate.

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Bibliographic Info

Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2009 with number 2009-01.

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Length: 25 pages
Date of creation: Feb 2009
Date of revision:
Handle: RePEc:usg:dp2009:2009-01

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Keywords: Corporate taxation; Multinational firms; Financial structure; Debt shifting; Propensity score matching;

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