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The Impact of Thin-Capitalization Rules on Multinationals’ Financing and Investment Decisions

Author

Listed:
  • Thiess Büttner
  • Michael Overesch
  • Ulrich Schreiber
  • Georg Wamser

Abstract

This paper analyzes the role of Thin-Capitalization rules for capital structure choice and investment decisions of multinationals. A theoretical analysis shows that the imposition of such rules tends to affect not only the leverage and the level of investment but also their tax-sensitivity. An empirical investigation of leverage and investment reported for affiliates of German multinationals in 24 countries in the period between 1996 and 2004 offers some support for the theoretical predictions. While Thin-Capitalization rules are found to be effective in restricting debt finance, investment is found to be more sensitive to taxes if debt finance is restricted.

Suggested Citation

  • Thiess Büttner & Michael Overesch & Ulrich Schreiber & Georg Wamser, 2006. "The Impact of Thin-Capitalization Rules on Multinationals’ Financing and Investment Decisions," CESifo Working Paper Series 1817, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1817
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    References listed on IDEAS

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    Cited by:

    1. Hikaru Ogawa & David E. Wildasin, 2009. "Think Locally, Act Locally: Spillovers, Spillbacks, and Efficient Decentralized Policymaking," American Economic Review, American Economic Association, vol. 99(4), pages 1206-1217, September.
    2. Dischinger, Matthias & Riedel, Nadine, 2011. "Corporate taxes and the location of intangible assets within multinational firms," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 691-707, August.
    3. Nils aus dem Moore, 2014. "Taxes and Corporate Financing Decisions – Evidence from the Belgian ACE Reform," Ruhr Economic Papers 0533, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    4. Christos Kotsogiannis & Robert Schwager, 2006. "Fiscal Equalization and Yardstick Competition," CESifo Working Paper Series 1865, CESifo Group Munich.
    5. Wildasin, David E., 2007. "Pre–Emption: Federal Statutory Intervention in State Taxation," National Tax Journal, National Tax Association, vol. 60(3), pages 649-662, September.
    6. aus dem Moore, Nils, 2014. "Taxes and Corporate Financing Decisions – Evidence from the Belgian ACE Reform," Ruhr Economic Papers 533, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. R. Miniaci & M. Parisi & P. Panteghini, 2014. "Debt shifting in Europe," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(3), pages 397-435, June.
    8. repec:zbw:rwirep:0533 is not listed on IDEAS

    More about this item

    Keywords

    corporate income tax; multinationals; leverage; Thin-Capitalization rules; firm-level data;

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