Disappearing Subsidiaries: The Cases of Google and Oracle

Abstract

From 2009 to 2010, 98 percent of Google’s and 99 percent of Oracle’s subsidiaries disappeared from the Exhibit 21s filed with their SEC Form 10Ks. However, a March 2012 search of available public company registries revealed that at least 65 percent of the missing subsidiaries remained active as of the companies’ 2010 filing dates. The decisions of Google and Oracle to disclose fewer subsidiaries stands in contrast to the literature documenting that firms providing more information enjoy lower costs of debt and equity capital. We employ legitimacy theory, institutional theory, agency theory, and political cost theory to explain the Google and Oracle decisions. Ultimately, however, we develop a new insight, that tax avoidance represents an additional source of capital beyond debt and equity, and this capital source exists in a unique setting that encourages less disclosure of certain types of information.

Keywords: Tax Avoidance, Tax Haven, Exhibit 21, Subsidiary

JEL Classification: G32, H21, H25, H73, K34, L86