Tuesday, March 26, 2013
Leslie A. Robinson (Dartmouth College, Tuck Business School) presents Internal Ownership Structures of Multinational Firms at NYU today as part of its Colloquium Series on Tax Policy and Public Finance convened by Daniel Shaviro (NYU) and William Gale (Tax Policy Center; visiting at NYU):
This paper is the first comprehensive analysis of the foreign ownership structures of U.S. multinational firms. Though the vast majority of foreign subsidiaries are ultimately wholly-owned by their U.S. parents, we show that the way these subsidiaries are arranged within ownership structures varies considerably from simple to highly complex, and that much of this variation cannot be explained by basic firm characteristics, such as size, age, industry, or diversification. Though the structures received much public attention in recent years, especially because of their role in tax planning by U.S. multinationals, no academic study to date investigates the different trade-offs involved in designing them jointly. This paper begins to fill this gap. After establishing a basic taxonomy and set of key facts about the structures, we look inside the black box of complex firms to investigate what forces drive internal ownership choices. We find strong evidence of several distinct tax motives, but also uncover a number of non-tax factors, including internal financing costs, expropriation risks, and legal liability.