international taxation and the direction and volume of cross border m as we show that the parent subsidiary structure of multinational firms created by cross border mergers and acquisitions is affected by the prospect of international double taxation specifically the likelihood of parent firm location in a country following a cross border takeover is reduced by high international double taxation of foreign source income at the same time countries with high international double taxation attract smaller numbers of parent firms a unilateral elimination of worldwide taxation by the united states is simulated to increase the proportion of parent firms locating in the united states following cross border mergers and acquisitions from 53 to 58

national cultural distance and cross border acquisition performance previous theoretical research has argued that national cultural distance hinders cross border acquisition performance by increasing the costs of integration this article tests the alternative hypothesis that national cultural distance enhances cross border acquisition performance by providing access to the target s and or the acquirer s diverse set of routines and repertoires embedded in national culture using a multi dimensional measure of national cultural distance and controlling for other effects we examine a sample of 52 cross border acquisitions that took place between 1987 and 1992 and find a positive association between national cultural distance and cross border acquisition performance

tax motivated transfer pricing and us intrafirm trade prices abstract this paper analyzes monthly data on us international trade prices between 1997 and 1999 in order to investigate the impact of tax influences on intrafirm trade prices results indicate that there is substantial evidence of tax motivated transfer pricing in us intrafirm trade prices there is a strong and statistically significant relationship between countries tax rates and the prices of intrafirm transactions controlling for other variables that affect trade prices as country tax rates are lower us intrafirm export prices are lower and us intrafirm import prices are higher this finding is consistent with theoretical predictions regarding tax motivated income shifting behavior

fiscal paradise foreign tax havens and american business the tax haven affiliates of american corporations account for more than 20 percent of u s foreign direct investment and nearly a third of the foreign profits of u s firms american companies report extraordinarily high profit rates on their tax haven investments in 1982 this behavior implies that the revenue maximizing tax rate for a typical haven is around 5 8 percent american and foreign investment in tax havens has an uncertain effect on u s tax revenue but since low tax rates encourage american companies to shift profits out of high tax foreign countries it is possible that low foreign tax rates ultimately enhance u s tax collections

taxes tariffs and transfer pricing in multinational corporate decision making three interrelated aspects of u s multinational corporation activity are analyzed here the ability to shift profits from high tax countries to low tax countries the impact of host country taxes and tariffs on the distribution of real capital and the influence of these policies on international trade patterns of the united states and host countries the cross sectional empirical analysis indicates that the observed pattern of reported profits in high and low tax countries is consistent with income shifting behavior and that real investment responds to host country effective tax rates and tariffs the united states appears both to import more from and export more to low tax countries where mnc investment is greater but this bilateral focus must be amplified to consider multilateral effects if trade benefits are to be projected copyright 1991 by mit press

inflation and tax evasion an empirical analysis this paper contains an analysis of the effect of inflation on aggregate tax evasion in the united states over the period 1947 81 it is found that tax evasion in both absolute and relative terms is positively related to the inflation rate further the results indicate that aggregate evasion has risen in both absolute and relative terms with increases in the marginal tax rate but has fallen with increases in the detection probability the penalty rate and the wage share of income finally evasion has risen in absolute terms but has fallen in relative terms when real true income has risen

mars venus marriages culture and cross border m a using a sample of over 800 cross border acquisitions during 1991 2004 we find that contrary to general perception cross border acquisitions perform better in the long run if the acquirer and the target come from countries that are culturally more disparate we use mainly the hofstede measure of cultural dimensions to measure cultural distance but also examine alternative proxies the positive relationship of performance to cultural distance persists after controlling for several deal specific variables and country level fixed effects and is robust to alternative specifications of long term performance cash and friendly acquisitions tend to perform better in the long run there is also some evidence of synergies when acquirers are from stronger economies relative to the targets

related lending and banking development does related lending have positive or negative effects on the development of banking systems we analyze a unique cross country data set covering 74 countries from 1990 to 2007 and find that related lending on average does not have any effect on the growth of credit we do find however that there are conditional relationships related lending tends to retard the growth of banking systems when rule of law is weak whereas it tends to promote the growth of banking systems when rule of law is strong we also find that related lending appears to be associated with looting when banks are owned by non financial firms but that it does not do so when non financial firms are owned by banks our results indicate that whether related lending is positive or pernicious depends critically on the institutional context in which it takes place there is no single best policy regarding related lending these findings are robust to alternative specifications including iv regressions

what goes around comes around effects of offshore outsourcing on the export performance of firms we examine the effect of offshore outsourcing on the export performance of firms building on the theories of international business the resource based view and transaction cost economics we argue that offshore outsourcing helps firms directly or indirectly to export more it may reduce their production costs and enhance their flexibility it may also provide them with new resources and market knowledge however the impact of offshore outsourcing depends on the resources and capabilities of firms to manage a network of foreign suppliers and to absorb foreign knowledge using a database of around 2000 manufacturing mnes in france in 1999 we find that offshore outsourcing increases export performance the effects being stronger in the export markets where firms import intermediate goods we also show that the firm size the organization of intra firm imports and the export experience moderate the effects of offshore outsourcing positively these findings have implications for firms and policymakers journal of international business studies 2011 42 334 344 doi 10 1057 jibs 2010 26

transfer pricing determinants of u s multinationals this paper examines the influence of environmental and firm specific variables on the selection of international transfer pricing strategies the primary data were obtained from 164 multinational enterprises by means of a questionnaire responses were analyzed by performing factor analysis and constructing a probit model the findings suggest that legal constraints and firm size are significant determinants in the selection of international transfer pricing strategies by u s multinationals

are the extent and effect of psychic distance perceptions symmetrical in cross border m as evidence from a two country study the concept of psychic distance has several entrenched assumptions that have not been put to sufficient systematic scrutiny we address this gap by investigating the assumptions of symmetry i e whether psychic distance from country a to country b is the same as that from country b to country a and discordance i e whether differences in psychic distance between two countries always lead to lack of fit of psychic distance in cross border mergers and acquisitions we propose a new framework which differentiates between the extent i e the degree to which two countries are perceived to be similar different and effects i e the degree to which distance perceptions create favorable or unfavorable attitudes and responses of psychic distance perceptions we argue that relative status positions affect extent and effects of psychic distance to test our predictions we collected data through policy capturing studies in sweden and china our findings reveal that both the extent and the effects of psychic distance perceptions are asymmetric we also found that psychic distance perceptions create unfavorable favorable attitudes among swedish chinese respondents toward chinese swedish acquirers our follow up examination confirms that relative status positions are a key driver of these results

cross border relocations of headquarters in europe this paper analyzes the relocations of both corporate and regional headquarters hq in a multi country setting on the basis of a dataset of 52 cross border hq relocations in europe during 1996 2006 we document an increasing trend toward relocation push and pull factors affecting hq location choice and catalyzing factors that affect the relocation decision high taxes and a high employment rate represent push factors that we find to increase the likelihood of hq relocation in particular at the mean rate of corporate tax a one percentage point increase in tax translates into a 6 8 increase in hq relocation likelihood in contrast central location and low taxes represent pull factors that increase the attractiveness of the hq location in terms of catalyzing factors we find that export oriented companies and regional hq have a higher tendency to relocate as a whole we extend the existing research by putting forward a conceptual framework of hq relocation decisions and by providing novel empirical evidence on the hq relocation phenomenon our findings contribute to an improved understanding of the determinants of corporate hq relocation decisions and provide important tax policy considerations for public policy decision makers in individual european countries and in the european commission

risk aversion versus expected profit maximization with a progressive income tax this article introduces the terms apparent or pseudo risk aversion to represent those situations where real risk aversion is falsely attributed simply because second and higher moments of random variables are arguments in a decision maker s objective function apparent risk aversion can occur when stochastic variables nonlinearly enter the objective function the progressive income tax structure is highlighted as a neglected but important source of apparent risk aversion such sources of apparent risk aversion should be recognized otherwise an incorrect level of risk aversion might be claimed or risk aversion might be claimed when risk neutrality prevails

taxing the multinational enterprise on the forced redesign of global value chains and other inefficiencies the taxation of the multinational enterprise mne has been a continuing concern for policymakers we argue that the changing nature of the mobile mne e g its improved ability to fine slice the value chain and disperse it geographically makes it increasingly important to rethink current tax policies first there should be more focus on the inefficiencies that arise when taxation leads to the inefficient location of mne activities thus mnes may shift activities to low tax jurisdictions that offer lucrative pecuniary and non pecuniary incentives but do not enable their investments to maximize their contribution to global value creation second international tax regimes should ensure that mnes pay for their consumption of local public goods and public finance scholars have long known that the taxation based distortions are minimized when the tax objects are immobile however the bulk of current tax policies are aimed at corporate profits that are both poor proxies for the consumption of local public goods as well as extremely mobile integrating theory from international business public finance and economic geography our analysis demonstrates that moving the incidence of taxation from corporate profits to dividends and consumption would unambiguously improve both wealth creation and efficiency

international capital structure equilibrium this paper develops a theory of capital structure in an international setting with corporate and personal taxes we generalize the miller analysis to an international equilibrium characterized by differential international taxation and inflation in otherwise perfect international capital markets our analysis highlights the key role that corporate tax arbitrage plays in generating an international capital structure equilibrium and we set forth a number of mechanisms for tax arbitrage transactions we close the paper by outlining some implications of our analysis for national differences in capital structure the international fisher effect and international tax effects on yield differentials among major questions regarding corporate capital structure which arise in an international setting are how or whether multiple tax jurisdictions and multiple currencies affect firm financing decisions and the international bond market equilibrium we examine some of these questions by way of generalizing miller s 1977 debt and taxes model into an international setting this setting allows for different tax regimes across countries as well as the possibility of differential inflation across currencies with consequent exchange rate movements in the first part of this paper we find that an international miller type equilibrium obtains under differential international taxation with capital market conditions which are otherwise analogous to those required for a domestic miller equilibrium our analysis particularly highlights the role that corporations play in miller s analysis as vehicles for tax arbitrage we show that if corporations engage in international tax arbitrage transactions on an equal footing no optimal capital structure exists for individual firms consequently without further restrictions differences in international tax rates alone are incapable of dictating a particular capital structure for an individual firm in the second part of the paper we extend the analysis to consider differential inflation rates with a consequent exchange rate movement and draw additional implications for the international analog of the miller equilibrium with differential inflation and taxation we begin by showing the existence of the international fisher effect for both equity and bonds although inflation and or exchange rate movements may affect real corporate tax subsidy rates and real

on income tax avoidance the case of germany abstract we present a micro estimate determining taxed income as a function of gross income and all major deduction options depending on household and asset categories it shows that tax savings strongly increase with increasing income resulting in an effective marginal tax rate 16 percentage points below the legislated one for the highest income groups this calls into question the intended distributional impact of progressive income taxation our estimate suggests aggregate income tax losses to the german fiscal authorities in the order of magnitude of 34 of wage and income taxes paid in 1983 relative to 1994 tax proceeds this percentage would amount to dm 105 b

governments ngos and agricultural development perspectives on changing inter organisational relationships there are divergent interests in involving ngos in public sector programmes of agricultural development some commentators seek to foster popular participation through such involvement while others view it largely within the logic of public sector cutbacks using material primarily from latin america and also from africa and asia the potential gains and risks inherent in a range of ngo government relationships are considered strengths and weaknesses in ngo development strategies and practice are reviewed and potential public sector contributions discussed while closer relationships between ngos and governments seem likely to emerge in the context of current public sector reform the form these relationships will assume is less clear and will probably be highly diverse

cross border takeovers corruption and related aspects of governance we use a panel of 4979 cross border and domestic takeovers to test the relation between host country corruption and premiums paid for local targets host country corruption is negatively associated with target premiums after correcting for other governance related factors such as political stability legal systems and financial disclosure standards we estimate that deterioration in the corruption index by one point on a 10 point scale is on average associated with a reduction of 21 of local targets premiums our results do not support the notion that local corruption constitutes a significant market barrier to foreign investors rather it represents a discount on local takeover synergies which affects foreign and domestic acquirers alike however we find that the major effects of corruption can alternatively be explained by government effectiveness pointing towards an endogenous relationship between bribery and bureaucracy

state ownership effect on firms fdi ownership decisions under institutional pressure a study of chinese outward investing firms this study investigates the effect of state ownership on chinese firms foreign direct investment fdi ownership decisions it adopts a political perspective to extend the application of institutional theory in international business research specifically it examines firms heterogeneous responses to external institutional processes during foreign market entry while taking into consideration the political affiliation of firms with the external institutions we argue that state ownership creates the political affiliation of a firm with its home country government which increases the firm s resource dependence on home country institutions while at the same time influencing its image as perceived by host country institutional constituents such resource dependence and political perception increase firms tendency to conform to rather than resist isomorphic institutional pressures we tested our hypotheses using primary data for 132 fdi entries made by chinese firms during 2000 2006 and we found that the effects of home regulatory host regulatory and host normative pressures on a firm to choose a joint ownership structure were stronger when the share of equity held by state entities in the firm was high

cross border acquisition abandonment and completion the effect of institutional differences and organizational learning in the international business service industry 1981 2001 based on the concepts of north s 1990 political economy of national institutions and economic behavior we investigate how formal and informal institutional features influence the likelihood that a cross border acquisition deal will be completed as well as the time taken for its completion after announcement additionally we study how past experience with completed acquisition deals moderates the effects of institutional differences we focus on a relatively new context the pre completion stage of acquisition processes we test our hypotheses using data from 2389 announced cross border acquisition deals in the international business service industry 1981 2001 we find that differences in national formal and informal institutions explain part of the variation in the likelihood that an announced cross border acquisition deal will be completed as well as the duration of the deal making in addition organizational learning moderates the effects of institutional distance past experience with completed cross border acquisition deals increases the likelihood of a subsequent deal completion in institutionally closer environments but shortens the deal duration in institutionally distant environments

portable country governance and cross border acquisitions the agency theory and law and finance literatures show good country governance encourages financial development mitigates agency problems and increases firm value drawing on these literatures we develop a theory that benefits from good country governance are portable by firms across countries through cross border acquisitions using acquisitions from 56 countries from 1990 to 2007 we find that acquirers can transport the benefits from good country governance so that they gain more from acquiring targets with worse country governance than their own as predicted the acquirer s stock price reaction to acquisitions increases with the country governance distance between the acquirer and the target

the effect of taxes and depreciation on corporate investment and financial leverage this paper provides an analysis of the effect of corporate and personal taxes on the firm s optimal investment and financing decisions under uncertainty it extends the deangelo aad masulis capital structure model by endogenizing the firm s investment decision the authors results indicate that when investment is allowed to adjust optimally the existing predictions about the relationship between investment related and debt related tax shields must be modified in particular the authors show that increases in investment related tax shields due to changes in the corporate tax code are not necessarily associated with reductions in leverage at the individual firm level in cross sectional analysis firms with higher investment related tax shields normalized by expected earnings need not have lower debt related tax shields normalized by expected earnings unless all firms utilize the same production technology differences in production technologies across firms may thus explain why the empirical results of recent cross sectional studies have not conformed to the predictions of deangelo and masulis

labor market regulations and cross border mergers and acquisitions this article exploits changes in country level employment protection regulations as a source of plausibly exogenous variation in labor laws and finds that these regulations play an important role in cross border merger activity over the 1991 2009 period countries that tighten employment regulations attract more foreign acquirers especially those from countries with relatively more flexible labor regulations the results appear to be robust to alternative specifications importantly these patterns are pronounced in those recipient country sectors in which foreign acquirers may find attractive targets at bargain prices sectors with relatively high productivity and skill the article also provides evidence suggesting that because pro labor reforms allow foreign acquirers to cherry pick more skilled and productive local firms these transactions are associated with greater deal synergies and improved post merger operating performance

failure to complete cross border m as to vs from emerging markets while cross border mergers and acquisitions m as involving emerging markets have been increasing in recent years a high percentage collapse before completion this study investigates how the predictors of cross border m a completion involving emerging markets depend upon the direction of global expansion i e investment inbound to a developing market or outbound from a developing market analysis based on 15 years of data from four emerging economies brazil russia india and china from 1995 to 2010 reveals fundamental differences in the predictors of inbound vs outbound m a completion country level factors reflecting differences in political trade and legal environments strongly affect the completion for inbound m as but have a much weaker influence on outbound m as by contrast firm level factors such as past m a experience have a significantly stronger effect on completion for outbound than for inbound m as most interestingly two deal level factors the percentage of stake sought by the acquirer and whether or not the deal is a cash transaction increase the likelihood of completion for inbound but decrease it for outbound m as these findings have important managerial implications for enhancing the success of global expansions

escape from the usa government debt to gdp ratio country tax competitiveness and us oecd cross border m as statutory tax rates of a country do not reflect a country s true tax competitiveness we propose and show that government debt to gdp ratio govdebt of a country is a better proxy for its tax competitiveness using a comprehensive sample of 1 884 completed cross border acquisition transactions from the u s to other oecd countries we document that the u s target country govdebt difference is significantly and positively related to both deal announcement return and post deal tax saving of the acquirer the govdebt difference is also significantly and positively related to u s target country deal flow the findings remain robust when we control for the potential endogeneity of govdebt difference our findings strongly suggest that tax avoidance is an important driver of u s oecd cross border deal flow and it increases shareholder wealth for u s acquirers

the underpricing of private targets abstract we examine acquisitions of private firms with valuation histories and find a positive relation between acquirer announcement returns and target valuation revisions similar to other studies acquirer announcement returns are positive on average however positive acquirer announcement returns are mainly driven by targets that are acquired for more than their prior valuation this relation is consistent with pricing effects associated with target valuation uncertainty and behavioral biases in negotiation outcomes

sequencing the expansion of geographic scope and foreign operations by born global firms born global firms are not actually born global but rather internationalize rapidly from their inception by expanding their geographic scope and extent of foreign operations however it remains unclear whether such firms 1 simultaneously expand along both dimensions 2 focus on expanding along a single dimension at a given time and switch interchangeably between expanding geographic scope and extent of foreign operations in subsequent periods or 3 stick solely to a specific internationalization path over several subsequent periods this study theorizes and empirically demonstrates that born global firms stick to a dominant internationalization path over subsequent periods arguably this phenomenon reflects managerial efforts to reduce the perceived risk of internationalization and their preference to develop and leverage capabilities that are specific to either of the internationalization paths until the economies of further expanding this path are exhausted

corporate tax evasion with agency costs this paper examines corporate tax evasion in the context of the contractual relationship between the shareholders of a firm and a tax manager who possesses private information regarding the extent of legally permissible reductions in taxable income and who may also undertake illegal tax evasion using a costly state falsification framework we characterize formally the optimal incentive compensation contract for the tax manager and in particular how the form of that contract changes in response to alternative enforcement policies imposed by the taxing authority the optimal contract may adjust to offset at least partially the effect of sanctions against illegal evasion and we find a new and policy relevant non equivalence result penalties imposed on the tax manager are more effective in reducing evasion than are those imposed on shareholders

an analysis of the principal agent problem most analyses of the principal agent problem assume that the principal chooses an incentive scheme to maximize expected utility subject to the agent s utility being at a stationary point an important paper of mirrlees has shown that this approach is generally invalid we present an alternative procedure if the agent s preferences over income lotteries are independent of action we show that the optimal way of implementing an action by the agent can be found by solving a convex programming problem we use this to characterize the optimal incentive scheme and to analyze the determinants of the seriousness of an incentive problem

tax structure and tax compliance a model of individual tax compliance behavior including evasion and avoidance is developed and estimated the model recognizes the importance of marginal income tax rates payroll tax contributions and benefits and the probabil ity of detection and the penalty on unpaid taxes share equations for avoidance evasion and reported income are estimated using individual level data the estimation results indicate that the tax base rises with higher benefits for payroll tax contributions and falls with higher marginal tax rates the base also falls with more severe penalties and more certain detection of evasion as individuals substitute towards avoid ance income t he methods by which individuals reduce their tax liabilities take a variety of legal and illegal forms all of which are influenced at least in part by incentives created by the tax structure these methods can be broadly classified as avoid ance and evasion tax avoidance is any legal activity that lowers taxes such as worker substitu tion between wage and nonwage compensation tax evasion is the reduction in tax liabilities by illegal means such as underreporting income on tax returns despite extensive but separate literatures on avoidance and evasion we know very little about the tax base response to changes in tax structure it is the purpose of this paper to examine the role that the tax structure plays in compliance there are several reasons for the persistence of the compliance puzzle most prominent is the absence of detailed individual data that would allow a full empirical specification of all factors affecting compliance this difficulty is most evi dent when searching for individual data on the evasion compliance decision even when avail able data have never allowed in the same work the construction of both tax and audit variables 1 clearly data availability is even more problem atic when looking at the choice among evasion avoidance and reported income in addition pre vious work has not looked at the avoidance evasion compliance decision as a joint process even though these decisions are made simultane ously 2 further both strands of the literature have ignored another factor that may affect the compliance decision the benefits that accrue from participation in payroll programs if benefits are tied only to taxable income then their presence gives individuals an incentive to pay taxes in short there has been no empirical work that analyzes the effects of tax rates probabilities penalties and payroll benefits on avoidance and evasion choices of individuals in this paper we provide such an analysis we first develop a theory of individual choice among the three types of compensation we then esti mate the resulting share demand equations using a unique data set which has detailed information on the compensation paid to roughly one quarter of the labor force in jamaica in 1983 from these data we are able to derive measures of reported taxable income evasion income and avoidance income for individual workers in the formal sec tor we are also able to construct measures of the marginal income tax rate marginal payroll taxes and benefits the probability of detection and the penalty on evasion for individual workers we are therefore able to estimate for the first time the responses of workers to the full range of tax structure parameters section i presents the theoretical model of worker compensation choice and the empirical specification of the model section ii discusses the jamaican tax system data and variable con struction are discussed in section iii estimation results are presented in section iv the final section summarizes the main results

from the editors endogeneity in international business research this essay builds on the exposition by thomas et al and focuses on analyzing cause and effect in international business research we attempt to explain how endogeneity problems occur and why they are so prevalent in international business research in a non technical fashion we then discuss the importance of explicitly identifying how the chosen research design best approximates a randomized controlled experiment finally we provide some guidelines on achieving this goal and emphasize the practices that seem most relevant to jibs reviewers in evaluating high quality international business research