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dc.contributor.authorSmith, James Kalman.
dc.creatorSmith, James Kalman.en_US
dc.date.accessioned2011-10-31T18:34:02Z
dc.date.available2011-10-31T18:34:02Z
dc.date.issued1995en_US
dc.identifier.urihttp://hdl.handle.net/10150/187244
dc.description.abstractThe Tax Reform Act of 1986 made significant changes to the foreign tax laws. The rule changes make it easier for U.S. multinationals to be in an excess foreign tax credit position and alter the way they allocate interest expense between domestic and foreign source income. As a result, there are incentives for U.S. multinationals to increase the debt levels of their foreign subsidiaries. This dissertation examines whether foreign subsidiaries of U.S. multinationals: (1) have increased the use of debt (relative to equity) in response to the Tax Reform Act of 1986, and (2) have made location (in a high-tax versus low-tax country) a more important variable in financing decisions after 1986. A large sample of foreign subsidiaries of U.S. multinationals, which represents forty four percent of the Fortune 500, is used for testing the hypotheses of the dissertation. A second large sample of foreign subsidiaries of non-U.S. multinationals is used as a control and as a basis of comparison. The results indicate that foreign subsidiaries of U.S. multinationals have significantly increased the use of debt (relative to equity) in the years after 1986. This increase in debt is shown to be positively associated with the foreign tax credit characteristics of the U.S. parent, such as the U.S. parent's ratio of foreign assets to worldwide assets and their foreign tax credit position. During this same time period foreign subsidiaries of non-U.S. multinationals have slightly decreased the use of debt. The results also indicate that the location of the foreign subsidiary of the U.S. multinational has a different effect on its financing behavior after 1986. After 1986, foreign subsidiaries of U.S. multinationals located in high-tax countries have made a significant shift towards debt, while foreign subsidiaries of U.S. multinationals located in low-tax countries have made a significant shift towards equity.
dc.language.isoenen_US
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.titleThe effect of the Tax Reform Act of 1986 on the capital structure of foreign subsidiaries.en_US
dc.typetexten_US
dc.typeDissertation-Reproduction (electronic)en_US
dc.contributor.chairDhaliwal, Dan S.en_US
thesis.degree.grantorUniversity of Arizonaen_US
thesis.degree.leveldoctoralen_US
dc.contributor.committeememberSchatzberg, Jeffrey W.en_US
dc.contributor.committeememberVines, Cynthiaen_US
dc.contributor.committeememberWang, Shiing-wuen_US
dc.identifier.proquest9603390en_US
thesis.degree.disciplineBusiness Administrationen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.namePh.D.en_US
dc.description.noteThis item was digitized from a paper original and/or a microfilm copy. If you need higher-resolution images for any content in this item, please contact us at repository@u.library.arizona.edu.
dc.description.admin-noteOriginal file replaced with corrected file October 2023.
refterms.dateFOA2018-06-15T12:04:24Z
html.description.abstractThe Tax Reform Act of 1986 made significant changes to the foreign tax laws. The rule changes make it easier for U.S. multinationals to be in an excess foreign tax credit position and alter the way they allocate interest expense between domestic and foreign source income. As a result, there are incentives for U.S. multinationals to increase the debt levels of their foreign subsidiaries. This dissertation examines whether foreign subsidiaries of U.S. multinationals: (1) have increased the use of debt (relative to equity) in response to the Tax Reform Act of 1986, and (2) have made location (in a high-tax versus low-tax country) a more important variable in financing decisions after 1986. A large sample of foreign subsidiaries of U.S. multinationals, which represents forty four percent of the Fortune 500, is used for testing the hypotheses of the dissertation. A second large sample of foreign subsidiaries of non-U.S. multinationals is used as a control and as a basis of comparison. The results indicate that foreign subsidiaries of U.S. multinationals have significantly increased the use of debt (relative to equity) in the years after 1986. This increase in debt is shown to be positively associated with the foreign tax credit characteristics of the U.S. parent, such as the U.S. parent's ratio of foreign assets to worldwide assets and their foreign tax credit position. During this same time period foreign subsidiaries of non-U.S. multinationals have slightly decreased the use of debt. The results also indicate that the location of the foreign subsidiary of the U.S. multinational has a different effect on its financing behavior after 1986. After 1986, foreign subsidiaries of U.S. multinationals located in high-tax countries have made a significant shift towards debt, while foreign subsidiaries of U.S. multinationals located in low-tax countries have made a significant shift towards equity.


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