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.

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doi.org/10.1080/13571516.2019.1599189, hdl.handle.net/1765/122040
International Journal of the Economics of Business
Erasmus School of Economics

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