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Corporate taxation, capital structure optimization, and economic growth dynamics in multinational firms across borders
Department of Quantitative Economics and Econometrics, Western Illinois University Macomb, USA.
Research Article
International Journal of Science and Research Archive, 2022, 07(02), 724-739
Article DOI: 10.30574/ijsra.2022.7.2.0315
Publication history:
Received on 07 November 2022; revised on 19 December 2022; accepted on 21 December 2022
Abstract:
Corporate taxation, capital structure optimization, and economic growth are intricately connected dimensions shaping the financial strategies and global competitiveness of multinational firms. From a macroeconomic perspective, tax regimes directly influence cross-border investment decisions, repatriation strategies, and profit-shifting behaviors, creating both opportunities and challenges for multinational corporations (MNCs). As these firms operate across diverse jurisdictions, varying tax rates, regulatory environments, and treaty networks lead to complex financial structuring aimed at minimizing tax liabilities while complying with international norms. Consequently, the optimization of capital structure becomes a critical strategic tool. By balancing debt and equity financing, firms can leverage tax shields, manage financial risk, and enhance firm value. However, the presence of inconsistent tax frameworks across borders can distort these decisions, leading to suboptimal capital allocations and affecting the economic stability of host and home countries. At the firm level, capital structure decisions are influenced by corporate taxation policies that impact the cost of capital, investment incentives, and return expectations. Multinational firms often exploit regulatory arbitrage by relocating debt or assets to jurisdictions with favorable tax treatments, influencing global patterns of economic activity. This behavior affects not only firm-level growth but also macroeconomic development, as tax avoidance and profit shifting can erode national tax bases, leading to revenue losses and policy distortions. Policymakers face the challenge of fostering a balance between competitive tax policies and safeguarding economic integrity. As international tax cooperation increases through OECD frameworks and global minimum tax regimes, the dynamics of capital structure and economic growth in multinational enterprises are set to evolve, requiring adaptive strategies and sustainable financial governance.
Keywords:
Corporate Taxation; Capital Structure Optimization; Multinational Firms; Economic Growth; Cross-Border Tax Strategy; Global Financial Governance
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