International Debt Shifting: Do Multinationals Shift Internal or External Debt?

Dirk Schindler, Jarle Møen, Guttorm Schjelderup and Julia Tropina

VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order from Verein für Socialpolitik / German Economic Association

Abstract: Multinational companies can exploit the tax advantage of debt more aggressively than national companies. Besides utilizing the standard debt tax shield, multinationals can shift debt from affiliates in low-tax countries to affiliates in high-tax countries. We study the capital structure of multinationals and expand previous theory by incorporating debt tax shield effects from both internal and external capital markets. A main finding is that firm value is maximized if both internal and external debt is used, and that internal lending should be conducted through a financial center in the lowest-taxed affiliate. Testing our model using a large panel of German multinationals, we identify all three debt tax shields. Our estimates suggest that internal and external debt shifting are of about equal relevance.

JEL-codes: F23 G32 H25 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (19)

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Related works:
Working Paper: International Debt Shifting: Do Multinationals Shift Internal or External Debt? (2011)
Working Paper: International Debt Shifting: Do Multinationals Shift Internal or External Debt? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc13:79749

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