There's No Place Like Home: The Profitability Gap between Headquarters and their Foreign Subsidaries

Dischinger, Matthias and Riedel, Nadine (2009) There's No Place Like Home: The Profitability Gap between Headquarters and their Foreign Subsidaries. Centre for Business Taxation WP 09/23.

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Abstract

Using a large data set of European firms, this paper provides evidence that operations at multinational headquarters are significantly more profitable than operations at their foreign subsidiaries. The effect turns out to be robust and quantitatively large. Our findings suggest that the profitability gap is partly driven by agency costs which arise if value–driving functions are managed by a subsidiary that is geographically separated from the headquarters management. In line with falling communication and travel costs over the last decade, the profitability gap is shown to decline over time. Apart from that, our results indicate that a higher competitiveness of multinational firms in their home markets also contributes to the profitability gap. We discuss various implications of our findings.

Item Type: Other Working Paper
Keywords: profit distribution, multinational enterprise, corporate taxes
Centre: Oxford University Centre for Business Taxation > CBT Working Papers
Date Deposited: 23 May 2012 15:28
Last Modified: 15 Oct 2015 02:18
URI: http://eureka.sbs.ox.ac.uk/id/eprint/3287

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