On the Capital Structure of Foreign Subsidiaries: Evidence from a Panel Data Quantile Regression Model

26 Pages Posted: 24 May 2021

See all articles by Raffaele Miniaci

Raffaele Miniaci

University of Brescia - Department of Economics and Management

Paolo Panteghini

University of Brescia

Date Written: 2021

Abstract

This paper studies how variations in tax rates and profitability affect the (unconditional) quantiles of the distribution of the leverage of European foreign owned subsidiaries in the presence of unobserved company characteristics, possibly correlated with their observable dimensions. To achieve our goal, we suggest how to apply Firpo et al. (2009) approach to the estimation of unconditional quantile partial effects in a model with correlated random effects. The results show that the impact of taxes and profitability on subsidiaries’ financial choices varies across different quantiles of the (skewed) distribution of leverage. In particular, when the leverage ratio is low enough, an increase in a subsidiary’s tax rate stimulates its borrowing. When however, the leverage ratio is high enough, taxes do not matter. We also find that the parent company’s tax rate has a positive impact on a subsidiary’s leverage ratio only if its starting leverage ratio is low enough. Finally, profitability (proxied by ROA) has either a negative or null impact, depending on the leverage ratio and the tax rate used (namely, statutory or effective marginal tax rates).

JEL Classification: C230, C210, G320, H250

Suggested Citation

Miniaci, Raffaele and Panteghini, Paolo, On the Capital Structure of Foreign Subsidiaries: Evidence from a Panel Data Quantile Regression Model (2021). CESifo Working Paper No. 9085, Available at SSRN: https://ssrn.com/abstract=3849863

Raffaele Miniaci (Contact Author)

University of Brescia - Department of Economics and Management ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Paolo Panteghini

University of Brescia ( email )

Piazza del Mercato, 15
25122 Brescia
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
12
Abstract Views
67
PlumX Metrics