The Pricing of Profit Shifting

Fotis Delis, Manthos D. Delis, Sotirios Kokas, Luc Laeven and Steven Ongena
Additional contact information
Fotis Delis: European Commission, Joint Research Centre
Manthos D. Delis: Audencia Business School
Sotirios Kokas: University of Essex - Essex Business School

No 25-62, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Profit shifting by multinational enterprises (MNEs) increases after-tax earnings but can expose firms to regulatory and reputational risks. We examine how stock markets price profit shifting using global profit shifting estimates from approximately 30,000 MNE-year observations between 2010 and 2020. We find that a one standard deviation increase in profit shifting is associated with 6.4% higher monthly stock returns, indicating that stock markets require compensation for the underlying risks. The identified effects become significant only after the initiation of the Base Erosion and Profit Shifting program and gain further strength following the implementation of the Tax Cuts and Jobs Act.

Keywords: Corporate taxes; Profit shifting; Stock returns; Enforcement risk; Global data (search for similar items in EconPapers)
JEL-codes: F23 F42 G14 H25 H26 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2025-07
New Economics Papers: this item is included in nep-opm, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2562

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