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Corporate taxation, debt financing and foreign-plant ownership

Type of publication Peer-reviewed
Publikationsform Original article (peer-reviewed)
Publication date 2010
Author Keuschnigg Christian, Egger Peter, Eggert Wolfgang, Winner Hannes,
Project Corporate Finance, Taxation and Economic Performance
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Original article (peer-reviewed)

Journal European Economic Review
Volume (Issue) 54
Page(s) 94 - 107
Title of proceedings European Economic Review
DOI 10.1016/j.euroecorev.2009.06.007


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.