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Corporate taxation, debt financing and foreign-plant ownership

Peter Egger, Wolfgang Eggert, Christian Keuschnigg & Hannes Winner

abstract This paper compares domestically and foreign-owned plants with respect to their debt-to-assets 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.
   
type journal paper
   
keywords Corporate taxation; Multinational firms; Financial structure; Debt shifting; Propensity score matching
   
language English
kind of paper journal article
date of appearance 1-1-2010
journal European Economic Review
publisher Elsevier (Amsterdam)
ISSN 0014-2921
ISSN (online) 1873-572X
DOI 10.1016/j.euroecorev.2009.06.007
volume of journal 54
number of issue 1
page(s) 96-107
review not reviewed
   
citation Egger, P., Eggert, W., Keuschnigg, C., & Winner, H. (2010). Corporate taxation, debt financing and foreign-plant ownership. European Economic Review, 54(1), 96-107, DOI:10.1016/j.euroecorev.2009.06.007.