Proceedings of the 7th International Conference on Advanced Research in Management, Business and Finance, 2024
Year: 2024
DOI:
[PDF]
Corporate Tax Inversion: Was it Really about Taxes?
Dr. Patrick Stanton
ABSTRACT:
Using hand collected data for the period 1983-2015, this study finds that 43 U.S. public firms from NYSE/AMEX/NASDAQ, across 15 unique industries have completed a corporate inversion and moved their legal tax domicile to one of ten different countries with a lower corporate tax rate. This study focuses on the determinants of inversion, economic freedom measures of the target countries, the market reaction of the inversion announcement and ex-post firm financials and taxes. Large firms that are less profitable (measured by ROA) are more likely to invert and the inversion target location is more likely to have greater tax freedom and investment freedom. The overall market reaction of the inversion announcement is positive and significant over a 7-day (-3, +3) event window and this is driven by more recent inversions (post 2004) to non-tax haven countries (Canada, Australia, and European). Expost the inverted firms show no significant change in taxes compared to a matched sample when controlling for industry, size, sales, and profitability.
keywords: Tax Inversion, Corporate finance, International Finance, Tax