The Impact of Thin-Capitalization Rules on Multinationals? Financing and Investment Decisions

Arbeitspapier

This paper analyzes the role of Thin-Capitalization rules for capital structure choice and investment decisions of multinationals. A theoretical analysis shows that the imposition of such rules tends to affect not only the leverage and the level of investment but also their tax-sensitivity. An empirical investigation of leverage and investment reported for affiliates of German multinationals in 24 countries in the period between 1996 and 2004 offers some support for the theoretical predictions. While Thin-Capitalization rules are found to be effective in restricting debt finance, investment is found to be more sensitive to taxes if debt finance is restricted.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 06-068

Classification and Topics

• Classification: Wirtschaft ; Tax Evasion and Avoidance ; 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)
• Subject: Corporate Income Tax ; Multinationals ; Leverage ; Thin-Capitalization Rules ; Firm-Level Data

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Schreiber, Ulrich ; Overesch, Michael ; Büttner, Thiess ; Wamser, Georg
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/24523
• Last update: 10.03.2025, 11:45 AM CET