The Corporate Governance of Profit Shifting

40 Pages Posted: 26 Aug 2018 Last revised: 12 Nov 2019

See all articles by Manthos D. Delis

Manthos D. Delis

Montpellier Business School

Panagiotis Karavitis

University of Glasgow - Adam Smith Business School

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Date Written: November 11, 2019

Abstract

We examine profit shifting as the outcome of corporate governance characteristics of multinational enterprises (MNEs). Using a sample of 558 parent firms from 14 countries and 4,728 subsidiaries in 41 countries, we first measure profit shifting at the subsidiary-year level from the responses of subsidiary profits to exogenous parent earnings shocks. Subsequently, drawing on agency theories of the firm, we show that board structure and directors’ experience have an economically important effect on the aggressiveness of profit shifting. Using our baseline specification, a one-standard deviation change in these board characteristics implies an 11% total response in our measure of profit shifting. Our results have important implications for the understanding of the intra-group mechanics of international profit shifting.

Keywords: Corporate governance; Profit shifting; Board structure; Directors’ experience; CEO duality

JEL Classification: F23, H25, H26, H32, M41

Suggested Citation

Delis, Manthos D. and Karavitis, Panagiotis and Klassen, Kenneth, The Corporate Governance of Profit Shifting (November 11, 2019). Available at SSRN: https://ssrn.com/abstract=3232114 or http://dx.doi.org/10.2139/ssrn.3232114

Manthos D. Delis

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Panagiotis Karavitis

University of Glasgow - Adam Smith Business School ( email )

University Avenue
Glasgow
Glasgow, West End G12 8QQ
United Kingdom

HOME PAGE: http://https://www.gla.ac.uk/schools/business/staff/panagiotiskaravitis/

Kenneth Klassen (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)

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