Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2008/15: Capital Structure and International Debt Shifting: A Comment

Jarle Møen (), Dirk Schindler () and Guttorm Schjelderup ()
Additional contact information
Jarle Møen: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway
Dirk Schindler: Dept. of Economics, University of Konstanz, Postal: University of Konstanz , Department of Economics, Box 137, 78457 Konstanz, Germany
Guttorm Schjelderup: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway

Abstract: In a recent article, Huizinga, Laeven and Nicodème (2008) present a novel model that motivates an extensive empirical analysis of international debt shifting. We point out that the model fails to account for internal debt, and that once internal debt is properly accounted for, the external debt mechanism they propose is not identified in the empirical analysis. We also point out that affiliate specific debt costs reduce affiliate dividends. When this is implemented in the model, their regression equation can only be derived under the very restrictive assumption that effective tax rates on dividends are the same in all countries.

Keywords: Multinational Firms; International Business; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Business Taxes and Subsidies

JEL-codes: F23; G32; H25

18 pages, August 22, 2008

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