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Taxation and capital structure choice: evidence from a panel of German multinationals

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  • Büttner, Thiess
  • Overesch, Michael
  • Schreiber, Ulrich
  • Wamser, Georg

Abstract

This paper analyzes the impact of taxes and lending conditions on the financial structure of multinationals? foreign affiliates. The empirical analysis employs a large panel of affiliates of German multinationals in 26 countries in the period from 1996 until 2003. In accordance with the theoretical predictions, the effect of local taxes on leverage is positive for both types of debt. Moreover, while adverse local credit market conditions are found to reduce external borrowing, internal debt is increasing, supporting the view that the two channels of debt finance are substitutes. --

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Bibliographic Info

Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-67.

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Date of creation: 2006
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Handle: RePEc:zbw:zewdip:5461

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Keywords: Corporate Income Tax; Multinationals; Capital Structure; Firm-Level Data;

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  1. Jeffrey MacKie-Mason, 1988. "Do Taxes Affect Corporate Financing Decisions?," NBER Working Papers 2632, National Bureau of Economic Research, Inc.
  2. Altshuler, Rosanne & Grubert, Harry, 2003. "Repatriation taxes, repatriation strategies and multinational financial policy," Journal of Public Economics, Elsevier, vol. 87(1), pages 73-107, January.
  3. Auerbach, Alan J., 2002. "Taxation and corporate financial policy," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 19, pages 1251-1292 Elsevier.
  4. Roger H. Gordon & Young Lee, 1999. "Do Taxes Affect Corporate Debt Policy? Evidence from US Corporate Tax Return Data," NBER Working Papers 7433, National Bureau of Economic Research, Inc.
  5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  6. Mihir A. Desai & C. Fritz Foley & James R. Hines, Jr., 2003. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," NBER Working Papers 9715, National Bureau of Economic Research, Inc.
  7. James R. Hines, Jr. & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," NBER Working Papers 3477, National Bureau of Economic Research, Inc.
  8. Jack Mintz & Alfons Weichenrieder, 2005. "Taxation and the Financial Structure of German Outbound FDI," CESifo Working Paper Series 1612, CESifo Group Munich.
  9. Jack Mintz & Michael Smart, 2001. "Income Shifting, Investment, and Tax Competition: Theory and Evidence from Provincial Taxation in Canada," CESifo Working Paper Series 554, CESifo Group Munich.
  10. John R. Graham, 2003. "Taxes and Corporate Finance: A Review," Review of Financial Studies, Society for Financial Studies, vol. 16(4), pages 1075-1129.
  11. Harry Grubert, 2003. "The Tax Burden on Cross-Border Investment: Company Strategies and Country Responses," CESifo Working Paper Series 964, CESifo Group Munich.
  12. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
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