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Why is the Response of Multinationals' Capital-Structure Choice to Tax Incentives That Low? Some Possible Explanations

Martin Ruf

FinanzArchiv: Public Finance Analysis, 2011, vol. 67, issue 2, 123-144

Abstract: This paper evaluates three possible explanations for why empirical studies have found a quite moderate response of multinationals' capital structure to tax incentives. Firstly, by concentrating on debt decisions by operating subsidiaries, previous studies may have overlooked the importance of holding companies. Secondly, international transfer-pricing guidelines may reduce the tax incentives for debt financing. And thirdly, debt as a tax planning tool may be especially used by large multinationals. Whereas I do not find empirical evidence in favor of the third hypothesis, I do find empirical evidence for the first and the second hypothesis.

Keywords: business taxation; tax planning; leverage; corporate finance (search for similar items in EconPapers)
JEL-codes: H25 G32 M41 F23 (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:mhr:finarc:urn:sici:0015-2218(291106)67:2_123:witrom_2.0.tx_2-4

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DOI: 10.1628/001522108X588763

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