There's no place like home: the profitability gap between headquarters and their foreign subsidiaries

Dischinger, Matthias, Knoll, Bodo and Riedel, Nadine (2014) There's no place like home: the profitability gap between headquarters and their foreign subsidiaries. Journal of Economics & Management Strategy, 23 (2). pp. 369-395.

Abstract

Using data on European firms, this paper provides evidence that an overproportional fraction of multinational group profits accrues with the corporate headquarters. Quantitatively, the estimates suggest that headquarters are by around 25% more profitable than their foreign subsidiaries, whereas this gap tends to decline over time. The effect turns out to be robust against controlling for observed and unobserved heterogeneity between the entities. Analogous (although quantitatively smaller) effects are found for national groups. We discuss various welfare implications of our findings.

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