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; and (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.

Additional Metadata
Keywords Corporate Taxation, Multinationals, Capital Structure, International Debt Shifting, Tax Avoidance
JEL Business Taxes and Subsidies (jel H25), Financing Policy; Capital and Ownership Structure (jel G32), Multinational Firms; International Business (jel F23)
Persistent URL dx.doi.org/10.1080/13571516.2019.1599189, hdl.handle.net/1765/122040
Journal International Journal of the Economics of Business
Møen, J., Schindler, D.S., Schjelderup, G., & Tropina Bakke, J. (2019). International Debt Shifting: The Value-Maximizing Mix of Internal and External Debt. International Journal of the Economics of Business, 26(3), 431–465. doi:10.1080/13571516.2019.1599189