Beiträge zur Jahrestagung des Vereins für Socialpolitik 2018: Digitale Wirtschaft - Session: Business Economics II E07-V1
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.
Corporate Taxation Multinational Entities Foreign Direct Investment Capital structure Mergers and acquisitions Empirical Analysis Firm-level data