The influence of governance infrastructure and corporate governance on profit shifting

Anish Sugathan () and Rejie George
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Rejie George: Indian Institute of Management Bangalore, Corporate Strategy and Policy Area, Bangalore, India

Journal of International Business Studies, 2015, vol. 46, issue 8, 886-916

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.

Date: 2015
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