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Handbook of the Economics of Finance by Rene M. Stulz, Milton Harris, George M. Constantinides

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3 Taxes and Capital Structure—Multinational Tax Issues

Section 2 reviews capital structure choice in the context of domestic-only firms. Most of the research is based on US firms that operate in a classical tax system (in which interest is tax deductible but equity payments are not). Although much academic research focuses on this paradigm, multinational tax issues have become ever more important. This section reviews how international tax law can affect corporate financing decisions in a multinational firm. The perspective in much research is for a firm headquartered in the United States and subsidiaries overseas, but many of the implications hold in a broader range of cross-border settings (even if the firm is headquartered outside the US). ...

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