Corporate taxation, debt financing and foreign-plant ownership

Peter Egger, Wolfgang Eggert, Christian Keuschnigg and Hannes Winner

European Economic Review, 2010, vol. 54, issue 1, 96-107

Abstract: This paper compares domestically and foreign-owned plants with respect to their debt-to-assets ratio and analyzes to which extent the difference is systematically affected by corporate taxation. To derive hypotheses about influence of corporate taxation on a firm's debt financing we adapt a standard model of taxation and financing decisions of firms for the case of international debt shifting activities of foreign-owned firms. We estimate the average difference between a foreign-owned and a domestically owned firm's debt ratio, treating the mode of ownership as endogenous. Using data from 32,067 European firms, we find that foreign-owned firms on average exhibit a significantly higher debt ratio than their domestically owned counterparts in the host country. Moreover, this gap in the debt ratio increases with the host country's statutory corporate tax rate.

Keywords: Corporate; taxation; Multinational; firms; Financial; structure; Debt; shifting; Propensity; score; matching (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (68)

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Working Paper: Corporate Taxation, Debt Financing and Foreign Plant Ownership (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:54:y:2010:i:1:p:96-107

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