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Taxation and leverage in international banking

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  • Grace Gu
  • Ruud Mooij
  • Tigran Poghosyan

Abstract

This paper explores how corporate taxes affect the capital structure of multinational banks. Guided by a theory of optimal capital structure, it tests whether (i) corporate tax rates induce subsidiary banks to raise leverage in light of traditional debt bias; and (ii) cross-country corporate tax differences affect a subsidiary’s leverage through international debt shifting. Using a novel data set for 756 commercial bank subsidiaries of 91 largest multinational banks in the world, we find that taxes matter significantly through both channels. Copyright Springer Science+Business Media New York (outside the USA) 2015

Suggested Citation

  • Grace Gu & Ruud Mooij & Tigran Poghosyan, 2015. "Taxation and leverage in international banking," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(2), pages 177-200, April.
    • Handle: RePEc:kap:itaxpf:v:22:y:2015:i:2:p:177-200
    DOI: 10.1007/s10797-014-9307-2
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    More about this item

    Keywords

    Multinational banks; Corporate tax; Debt bias; Debt shifting; G21; G32; H25;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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