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Tax Status and Tax Response Heterogeneity of Multinationals' Debt Finance

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  • Thiess Buettner
  • Michael Overesch
  • Georg Wamser

Abstract

This paper analyzes how corporate taxation affects the capital structure of subsidiaries of multinational companies. The emphasis is on firm characteristics that proxy for the tax status of a subsidiary, which is crucial for the tax responsiveness of firms. Based on a comprehensive panel of German multinationals, we find that the tax sensitivity of the capital structure is significantly affected by several firm characteristics. Our results imply that well-known non-debttax shields such as depreciation allowances and loss carryforwards reduce the tax sensitivity of the debt-to-capital ratio. We also find that a higher probability of experiencing losses reduces the tax-rate sensitivity of debt financing.

Suggested Citation

  • Thiess Buettner & Michael Overesch & Georg Wamser, 2011. "Tax Status and Tax Response Heterogeneity of Multinationals' Debt Finance," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(2), pages 103-122, June.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(291106)67:2_103:tsatrh_2.0.tx_2-8
    DOI: 10.1628/001522108X588781
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    Citations

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    Cited by:

    1. Jarle Møen & Dirk Schindler & Guttorm Schjelderup & Julia Tropina, 2011. "International Debt Shifting: Do Multinationals Shift Internal or External Debt?," Working Paper Series of the Department of Economics, University of Konstanz 2011-40, Department of Economics, University of Konstanz.
    2. Goldbach, Stefan & Møen, Jarle & Schindler, Dirk & Schjelderup, Guttorm & Wamser, Georg, 2021. "The tax-efficient use of debt in multinational corporations," Journal of Corporate Finance, Elsevier, vol. 71(C).
    3. Guttorm Schjelderup, 2016. "The Tax Sensitivity of Debt in Multinationals: A Review," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(1), pages 109-121, February.
    4. Harendt, Christoph, 2018. "Tax influence on financial structures of M&As," ZEW Discussion Papers 18-004, ZEW - Leibniz Centre for European Economic Research.
    5. Harendt, Christoph, 2018. "Tax Influence on Financial Structures of M&As," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181552, Verein für Socialpolitik / German Economic Association.
    6. Jarle Møen & Dirk Schindler & Guttorm Schjelderup & Julia Tropina Bakke, 2019. "International Debt Shifting: The Value-Maximizing Mix of Internal and External Debt," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 26(3), pages 431-465, September.
    7. Overesch Michael, 2016. "Steuervermeidung multinationaler Unternehmen: Die Befunde der empirischen Forschung," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 17(2), pages 129-143, July.
    8. Peter Egger & Valeria Merlo, 2011. "Statutory Corporate Tax Rates and Double-Taxation Treaties as Determinants of Multinational Firm Activity," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 67(2), pages 145-170, June.

    More about this item

    Keywords

    non-debttax shields; corporate taxation; debt finance; firm-level data;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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