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Multinationals, Minority Ownership and Tax-Efficient Financing Structures

  • Dirk Schindler
  • Guttorm Schjelderup

This paper presents a theory model that simultaneously accounts for the financing decisions and ownership structure in affiliates of multinational firms. We find that affiliates of multinationals have higher internal and overall debt ratios and lower rental rates of physical capital than comparable domestic firms. We also show that affiliates with minority owners have less debt than wholly owned affiliates and a less tax-efficient financing structure. The latter is due to an externality whereby minority ownership dampens the incentive to avoid taxes through the use of internal debt.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2010/wp-cesifo-2010-04/cesifo1_wp3034.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3034.

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Date of creation: 2010
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Handle: RePEc:ces:ceswps:_3034
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  1. Huizinga, Harry & Laeven, Luc & Nicodeme, Gaetan, 2008. "Capital structure and international debt shifting," Journal of Financial Economics, Elsevier, vol. 88(1), pages 80-118, April.
  2. Buettner, Thiess & Overesch, Michael & Schreiber, Ulrich & Wamser, Georg, 2009. "Taxation and capital structure choice--Evidence from a panel of German multinationals," Economics Letters, Elsevier, vol. 105(3), pages 309-311, December.
  3. Chowdhry, Bhagwan & Coval, Joshua D., 1998. "Internal financing of multinational subsidiaries: Debt vs. equity1," Journal of Corporate Finance, Elsevier, vol. 4(1), pages 87-106, March.
  4. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004. "A Multinational Perspective on Capital Structure Choice and Internal Capital Markets," Journal of Finance, American Finance Association, vol. 59(6), pages 2451-2487, December.
  5. Martin Ruf & Alfons Weichenrieder, 2009. "The Taxation of Passive Foreign Investment - Lessons from German Experience," CESifo Working Paper Series 2624, CESifo Group Munich.
  6. Mintz, Jack M. & Weichenrieder, Alfons J., 2010. "The Indirect Side of Direct Investment: Multinational Company Finance and Taxation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262014491, June.
  7. Gomes-Casseres, Benjamin, 1989. "Ownership structures of foreign subsidiaries : Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 11(1), pages 1-25, January.
  8. Mugele, Christian & Schnitzer, Monika, 2006. "Organization of Multinational Activities and Ownership Structure," Discussion Papers in Economics 893, University of Munich, Department of Economics.
  9. Büttner, Thiess & Overesch, Michael & Schreiber, Ulrich & Wamser, Georg, 2008. "The impact of thin-capitalization rules on multinationals' financing and investment decisions," Discussion Paper Series 1: Economic Studies 2008,03, Deutsche Bundesbank, Research Centre.
  10. Alfons Weichenrieder, 2009. "Profit shifting in the EU: evidence from Germany," International Tax and Public Finance, Springer, vol. 16(3), pages 281-297, June.
  11. Robert E. Baldwin & L. Alan Winters, 2004. "Challenges to Globalization: Analyzing the Economics," NBER Books, National Bureau of Economic Research, Inc, number bald04-1.
  12. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2000. "Ferreting Out Tunneling: An Application to Indian Business Groups," NBER Working Papers 7952, National Bureau of Economic Research, Inc.
  13. Andreas Haufler & Marco Runkel, 2008. "Firms’ Financial Choices and Thin Capitalization Rules under Corporate Tax Competition," CESifo Working Paper Series 2429, CESifo Group Munich.
  14. Rita de la Feria & Ana Paula Dourado, 2008. "Thin Capitalization Rules in the Context of the CCCTB," Working Papers 0804, Oxford University Centre for Business Taxation.
  15. Rosanne Altshuler & Harry Grubert, 2001. "Repatriation Taxes, Repatriation Strategies and Multinational Financial Policy," NBER Working Papers 8144, National Bureau of Economic Research, Inc.
  16. Robert E. Lipsey, 2004. "Home- and Host-Country Effects of Foreign Direct Investment," NBER Chapters, in: Challenges to Globalization: Analyzing the Economics, pages 333-382 National Bureau of Economic Research, Inc.
  17. Jack Mintz, 2004. "Conduit Entities: Implications of Indirect Tax-Efficient Financing Structures for Real Investment," International Tax and Public Finance, Springer, vol. 11(4), pages 419-434, 08.
  18. Alfons Weichenrieder & Helen Windischbauer, 2008. "Thin-Capitalization Rules and Company Responses Experience from German Legislation," CESifo Working Paper Series 2456, CESifo Group Munich.
  19. Mihir A. Desai & C. Fritz Foley & James R. Hines, Jr., 2002. "The Costs of Shared Ownership: Evidence from International Joint Ventures," NBER Chapters, in: Corporate Alliances National Bureau of Economic Research, Inc.
  20. Fuest, Clemens & Hemmelgarn, Thomas, 2005. "Corporate tax policy, foreign firm ownership and thin capitalization," Regional Science and Urban Economics, Elsevier, vol. 35(5), pages 508-526, September.
  21. Gramlich, J.D.Jeffrey D. & Limpaphayom, Piman & Ghon Rhee, S., 2004. "Taxes, keiretsu affiliation, and income shifting," Journal of Accounting and Economics, Elsevier, vol. 37(2), pages 203-228, June.
  22. Kant, Chander, 1990. "Multinational firms and government revenues," Journal of Public Economics, Elsevier, vol. 42(2), pages 135-147, July.
  23. Alfons J. Weichenrieder & Jack Mintz, 2008. "What determines the use of holding companies and ownership chains?," Working Papers 0803, Oxford University Centre for Business Taxation.
  24. Kant, Chander, 1988. "Endogenous transfer pricing and the effects of uncertain regulation," Journal of International Economics, Elsevier, vol. 24(1-2), pages 147-157, February.
  25. Robert E. Lipsey, 2002. "Home and Host Country Effects of FDI," NBER Working Papers 9293, National Bureau of Economic Research, Inc.
  26. Thiess Buettner & Georg Wamser, 2007. "Intercompany Loans and Profit Shifting – Evidence from Company-Level Data," CESifo Working Paper Series 1959, CESifo Group Munich.
  27. Jack Mintz & Alfons Weichenrieder, 2005. "Taxation and the Financial Structure of German Outbound FDI," CESifo Working Paper Series 1612, CESifo Group Munich.
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