The tax-efficient use of debt in multinational corporations

Stefan Goldbach, Jarle Møen, Dirk Schindler, Guttorm Schjelderup*, Georg Wamser

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

6 Citations (Scopus)
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Affiliates of multinationals borrow a considerable amount from their parent company, even when the parent is located in a high-tax country. This is at odds with standard theories of a tax-efficient capital structure. We set up a model that analyzes the functioning of the internal capital market and investigates the trade-off between tax savings and capital market frictions within the group. We test the model on data of the universe of German multinationals. The empirical analysis largely supports our model in that: (i) smaller multinationals often rely on parental debt financing; (ii) larger multinationals are more likely to use internal banks; (iii) parental debt and external debt are substitutes and the mix depends on the relative cost of raising capital through the parent and the affiliates; (iv) local and within-group tax incentives play an important role in determining all three types of debt.

Original languageEnglish
Article number102119
Number of pages26
JournalJournal of Corporate Finance
Publication statusPublished - Dec 2021

Bibliographical note

Funding Information:
This paper represents the authors’ personal opinions and does not necessarily reflect the views of the Deutsche Bundesbank or its staff. Møen and Schjelderup gratefully acknowledge funding from the Research Council of Norway , Grant No. 267423 . The Norwegian Center for Taxation (NoCeT) receives base funding from the Norwegian Tax Administration .

Publisher Copyright:
© 2021


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