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

Ulrich Schreiber, Michael Overesch, Thiess Büttner and Georg Wamser

No 06-068, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

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)
Date: 2006
New Economics Papers: this item is included in nep-pbe
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Citations: View citations in EconPapers (15)

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