Corporate taxation, debt financing and foreign-plant ownership |
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Authors: | Peter Egger Christian Keuschnigg |
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Affiliation: | a Ifo Institute, University of Munich, and CESifo, PoschingerstraBe 5, D-81679 Munich, Germany b University of Paderborn and CESifo, Warburgerstr. 100, D-33098 Paderborn, Germany c University of St. Gallen (IFF-HSG), CESifo and CEPR, Varnbuelstrasse 19, CH - 9000 St. Gallen, Switzerland d University of Salzburg, Kapitelgasse 5-7, A-5010 Salzburg, Austria |
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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. |
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Keywords: | H25 G32 F23 C21 |
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