This study develops a theoretical model of a multinational firm
with an internal capital market. Hypotheses regarding the role of
local versus foreign characteristics such as profit tax rates, lack of
institutional quality, financial underdevelopment, and productivity
for internal debt financing at the level of foreign affiliates are derived
and assessed empirically in a panel dataset covering the universe
of German multinationals. We show that differences in nontax
incentives given by fundamentals in local and foreign markets can
offset or reinforce tax incentives. The results point at a many times
higher tax-sensitivity of internal debt financing compared to previous
Egger, Peter, Christian Keuschnigg, Valeria Merlo, and Georg Wamser.
"Corporate Taxes and Internal Borrowing within Multinational Firms."
American Economic Journal: Economic Policy,
Multinational Firms; International Business
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Business Taxes and Subsidies including sales and value-added (VAT)