The influence of governance infrastructure and corporate governance on profit shifting

Document Type

Article

Publication Title

Journal of international Business Studies

Abstract

In this article we develop a conceptual model to examine the influence of quality of country-level governance infrastructure and corporate governance effectiveness on profit shifting. We empirically test propositions derived from the model with a unique firm-level data set and using multiple indicators of governance infrastructure quality and corporate governance mechanisms. We estimate that on average about 6% of total pre-tax income is shifted out of foreign-owned firms in India. We show that governance infrastructure that improves collective action and transparency in both the foreign- and host-country reduces shifting. On the other hand, secure property rights and efficient contracting in the foreign country increases shifting. We also find that monitoring by foreign institutional investors restricts shifting.

Publication Date

10-9-2015

Publisher

Palgrave Macmillan Ltd.

Volume

Vol.46

Issue

Iss.8

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