Determining the impact of taxation on corporate financial decision-making

Abstract

This PhD project contributes to the corporate finance literature by analyzing several issues related to the impact of taxation on the financial decision-making of companies. The main research question of this doctoral project is twofold. First, I analyze how the heterogeneity among national tax systems distorts the financial decisions of a multinational enterprise. I investigate the consequences of a series of alternative international tax designs on the strategy of a multinational enterprise regarding the cross border distribution of its investment and the choice of its financing behavior. I analyze inter alia a combination of an Allowance for Corporate Equity and a Comprehensive Business Income Tax and the introduction of a system of Consolidation and Formulary Apportionment. Moreover, I investigate how international tax consolidation can tackle the distortion related to heterogeneous national tax systems.Secondly, I empirically measure how the tax discrimination between debt and equity affects the capital structure of a company by comparing the debt ratio of treatment and control companies before and after the introduction of an equity tax shield (difference-in-differences regression). Consistent with the theoretical prediction, the estimated results show that the introduction of an equity tax shield has a significant negative effect on the debt ratio of a company. This effect amounts to approximately 2-7%, meaning that a classical tax system encourages companies to use on average 2-7% more debt than when there is an equal tax treatment of debt and equity.JEL Codes: F23, G32, H25, H32, K34