This paper analyzes the effectiveness of thin-capitalization rules in preventing debt finance by intercompany loans and explores their consequences for corporate decisions. A theoretical discussion emphasizes that limitations of the deduction of interest owed to foreign affiliates would not only...

Taxes play an important role in determining the capital structure of companies. Consequently,a multinational company would choose its capital structure according to differencesin international taxation. Unlike purely national firms, multinationals can also use intercompanyloans to shift profits...

This paper analyzes the impact of taxes and lending conditions on the financial structure ofmultinationals' foreign affiliates. The empirical analysis employs a large panel of affiliates ofGerman multinationals in 26 countries in the period from 1996 until 2003. In accordance withthe theoretical...

This paper examines how restrictions on the tax-deductibility of interest cost affect location choices of multinational corporations (MNCs). Many countries have introduced so-called thin-capitalization rules (TCRs) to prevent MNCs from shifting tax base to countries with lower tax rates. As of...

Existing theories of a firm's optimal capital structure seem to fail in explaining why many healthy and profitable firms rely heavily on equity financing, even though benefits associated with debt (like tax shields) appear to be high and the bankruptcy risk low. This holds in particular for...

This paper shows that the cost of enforcing contracts governing non-financial relationships between firms affects a firm's financing structure. We analyze the interaction between a firm's capital structure and the type of contracts it uses to deal with its suppliers. We first develop a...

Existing theories of a firm's optimal capital structure seem to fail in explaining why many healthy and profitable firms rely heavily on equity financing, even though benefits associated with debt (like tax shields) appear to be high and the bankruptcy risk low. This holds in particular for...