The Value of International Income Shifting to U.S. Multinational Firms

51 Pages Posted: 22 Aug 2016 Last revised: 3 Jun 2020

See all articles by Paul Demere

Paul Demere

University of Georgia - J.M. Tull School of Accounting

Jeffrey Gramlich

Carson College of Business

Date Written: June 1, 2020

Abstract

We examine the value to U.S. multinational firms of shifting income from high- to low-tax jurisdictions. Such shifting is common and sizable, yet the shareholder consequences are heretofore unknown. Using a novel income shifting measure and identification strategy from Demeré and Gramlich (2020), we find that, on average, a one percent increase in income shifting incentives is associated with a 0.5 percent firm value discount. Both shifting income between the U.S. and foreign jurisdictions and shifting income between foreign jurisdictions result in firm value discounts. U.S.–foreign income shifting appears to impair firm value through myopic uses of income shifting, while foreign–foreign income shifting appears to impair firm value through managerial rent extraction. These results suggest a fundamental difference in the nature and motivations of different types of income shifting.

Keywords: Income Shifting, Corporate Income Tax, Firm Value, Managerial Rent Extraction

JEL Classification: F38, H26, H32

Suggested Citation

Demere, Paul and Gramlich, Jeffrey, The Value of International Income Shifting to U.S. Multinational Firms (June 1, 2020). Available at SSRN: https://ssrn.com/abstract=2826132 or http://dx.doi.org/10.2139/ssrn.2826132

Paul Demere

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

Jeffrey Gramlich (Contact Author)

Carson College of Business ( email )

Wilson Rd.
College of Business
Pullman, WA 99164
United States

HOME PAGE: http://https://business.wsu.edu/research-faculty/institutes/hoops-institute/

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