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

Thiess Buettner (), Michael Overesch, Ulrich Schreiber and Georg Wamser
Additional contact information
Thiess Buettner: Ifo Institute for Economic Research, Poschingerstr. 5, D-81679 Munich, Mannheim, Germany
Michael Overesch: ZEW, L 7,1 D-68161 Mannheim, Postfach 103443 D-68034
Ulrich Schreiber: Mannheim University and ZEW, Mannheim Business School, L 5, 6, 68131 Mannheim, Deutschland
Authors registered in the RePEc Author Service: Thiess Büttner

No 2006-06, Working Papers from University of Kentucky, Institute for Federalism and Intergovernmental Relations

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.

Keywords: Corporate Income Tax; Multinationals; Leverage; Thin-Capitalization Rules; Firm-Level Data (search for similar items in EconPapers)
JEL-codes: G32 H25 H26 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2006-09
New Economics Papers: this item is included in nep-acc, nep-fin, nep-fmk and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

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http://www.ifigr.org/publication/ifir_working_papers/IFIR-WP-2006-06.pdf (application/pdf)

Related works:
Working Paper: The impact of thin-capitalization rules on multinationals' financing and investment decisions (2008)
Working Paper: The Impact of Thin-Capitalization Rules on Multinationals’ Financing and Investment Decisions (2006)
Working Paper: The Impact of Thin-Capitalization Rules on Multinationals? Financing and Investment Decisions (2006)
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