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Tax Influence on Financial Structures of M&As

Christoph Harendt

Annual Conference 2018 (Freiburg, Breisgau): Digital Economy from Verein für Socialpolitik / German Economic Association

Abstract: A well-known strategy of tax avoidance by multinationals is to locate debt in subsidiaries in countries with a high tax rate. In case of M&As it is particularly advantageous to locate debt at the level of holdings. By using firm-level data provided by the German Central Bank, I show empirically that indeed the probability that a firm is held by a holding in the same country increases with the local tax rate. Furthermore, consolidating the balance sheets of firms and their holdings leads to a stronger effect of taxes on the debt ratio. However, I find this effect only for a sample of all firms and no additional effect in case of M&As. I conclude that those findings may be one explanation why previous studies have found relatively low effects of taxes on debt financing.

Keywords: Corporate Taxation; Multinational Entities; Foreign Direct Investment; Capital structure; Mergers and acquisitions; Empirical Analysis; Firm-level data (search for similar items in EconPapers)
JEL-codes: F23 G32 G34 H25 H26 H32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-pbe
Date: 2018
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