Determinants of Capital Structure for Multinational and Domestic Corporations

This paper investigates the determinants of capital structure for 515 U.S. based multinational and domestic corporations for the 1973-1992 period. Key determinants include variables capturing the unlevered effective corporate tax rate, the intensity of use of non-debt tax shelters, and the agency cost of debt. Fixed-effects panel data methods are employed for estimation. A strong association is found between leverage and corporate tax rates for both domestic and multinational firms. There is also strong evidence that investment and financing decisions are interrelated. Behavioral changes related to the 1986 tax law changes are identified.