Corporate Taxation, Debt Financing and Foreign Plant Ownership

Christian Keuschnigg, Peter Egger, Wolfgang Eggert and Hannes Winner

University of St. Gallen Department of Economics working paper series 2009 from Department of Economics, University of St. Gallen

Abstract: This paper compares domestically and foreign-owned plants with respect to their debt-toassets ratio and analyzes to which extent the difference is systematically affected by corporate taxation. To derive hypotheses about influence of corporate taxation on a firm's debt financing we adapt a standard model of taxation and financing decisions of firms for the case of international debt shifting activities of foreign-owned firms. We estimate the average difference between a foreign-owned and a domestically-owned firm's debt ratio, treating the mode of ownership as endogenous. Using data from 32,067 European firms, we find that foreign-owned firms on average exhibit a significantly higher debt ratio than their domestically-owned counterparts in the host country. Moreover, this gap in the debt ratio increases with the host country's statutory corporate tax rate.

Keywords: Corporate taxation, Multinational firms, Financial structure, Debt shifting; Propensity score matching (search for similar items in EconPapers)
JEL-codes: C21 F23 G32 H25 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2009-02
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Journal Article: Corporate taxation, debt financing and foreign-plant ownership (2010)
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