International Debt Shifting: The Value Maximizing Mix of Internal and External Debt

51 Pages Posted: 2 Apr 2019

See all articles by Jarle Møen

Jarle Møen

Norwegian School of Economics (NHH) - Department of Business and Management Science

Dirk Schindler

Erasmus School of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Guttorm Schjelderup

Norwegian School of Economics (NHH) - Department of Business and Management Science

Julia Tropina Bakke

Norwegian School of Economics (NHH)

Date Written: March 29, 2019

Abstract

We study the capital structure of multinationals and expand previous theory by incorporating international debt tax shield effects from both internal and external capital markets. We show that: (i) multinationals' firm value is maximized if both internal and external debt are used to save tax; (ii) the use of internal and external debt is independent of each other; (iii) multinationals have a tax advantage over domestic firms, which cannot shift debt across international borders. We test our model using a large panel of German multinationals and find that internal and external debt shifting are of about equal importance.

Keywords: Corporate taxation, multinationals, capital structure, international debt-shifting, tax avoidance

JEL Classification: H25, G32, F23

Suggested Citation

Moen, Jarle and Schindler, Dirk and Schjelderup, Guttorm and Bakke, Julia Tropina, International Debt Shifting: The Value Maximizing Mix of Internal and External Debt (March 29, 2019). NHH Dept. of Business and Management Science Discussion Paper No. 2019/1, Available at SSRN: https://ssrn.com/abstract=3364436 or http://dx.doi.org/10.2139/ssrn.3364436

Jarle Moen

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Dirk Schindler

Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Guttorm Schjelderup (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Julia Tropina Bakke

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

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