Scandinavian Working Papers in Business Administration

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2019/1: International Debt Shifting: The Value Maximizing Mix of Internal and External Debt

Jarle Møen (), Dirk Schindler (), Guttorm Schjelderup () and Julia Tropina Bakke ()
Additional contact information
Jarle Møen: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Dirk Schindler: Dept. of Accounting, Auditing and Law, Norwegian School of Economics, Postal: NHH , Department of Accounting, Auditing and Law, Helleveien 30, N-5045 Bergen, Norway
Guttorm Schjelderup: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Julia Tropina Bakke: SNF - Centre for Applied Research at NHH, Postal: SNF, Helleveien 30, N-5045 Bergen, Norway

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-codes: F23; G32; H25

49 pages, March 29, 2019

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