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Corporate Tax Inversions and Reputational Costs - A Study on Board-Level Patriotism and the Decision to Expatriate

Gjörup, Alexander LU and Nilsson, Gustav (2016) NEKP03 20161
Department of Economics
Abstract
Corporate inversion is the procedure of reincorporating abroad for tax purposes to reduce the corporate income tax. The purpose of this paper is two-fold. First, we evaluate the shareholder value creation aspect of U.S. corporate inversions after 2004, a year when the U.S. imposed a number of regulatory changes to reduce the benefits of tax inversions. Second, we examine a number of board-related determinants of the decision to invert, with particular focus on board-level patriotism and firm ethics. By using traditional event study methodology we show that inversions create significant shareholder value. We also find that the ratio of foreign professionals on U.S. corporate boards positively affect the decision to invert. By assuming a... (More)
Corporate inversion is the procedure of reincorporating abroad for tax purposes to reduce the corporate income tax. The purpose of this paper is two-fold. First, we evaluate the shareholder value creation aspect of U.S. corporate inversions after 2004, a year when the U.S. imposed a number of regulatory changes to reduce the benefits of tax inversions. Second, we examine a number of board-related determinants of the decision to invert, with particular focus on board-level patriotism and firm ethics. By using traditional event study methodology we show that inversions create significant shareholder value. We also find that the ratio of foreign professionals on U.S. corporate boards positively affect the decision to invert. By assuming a positive relationship between patriotism and the level of board reputational costs, we introduce the notion that lack of board-level patriotism may partly explain the under sheltering problem related to tax inversions. (Less)
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author
Gjörup, Alexander LU and Nilsson, Gustav
supervisor
organization
course
NEKP03 20161
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Tax Avoidance, Tax Inversion, Board Nationality, Reputational Costs, Under Sheltering Puzzle
language
English
id
8883160
date added to LUP
2016-06-27 16:10:54
date last changed
2016-06-27 16:10:54
@misc{8883160,
  abstract     = {Corporate inversion is the procedure of reincorporating abroad for tax purposes to reduce the corporate income tax. The purpose of this paper is two-fold. First, we evaluate the shareholder value creation aspect of U.S. corporate inversions after 2004, a year when the U.S. imposed a number of regulatory changes to reduce the benefits of tax inversions. Second, we examine a number of board-related determinants of the decision to invert, with particular focus on board-level patriotism and firm ethics. By using traditional event study methodology we show that inversions create significant shareholder value. We also find that the ratio of foreign professionals on U.S. corporate boards positively affect the decision to invert. By assuming a positive relationship between patriotism and the level of board reputational costs, we introduce the notion that lack of board-level patriotism may partly explain the under sheltering problem related to tax inversions.},
  author       = {Gjörup, Alexander and Nilsson, Gustav},
  keyword      = {Tax Avoidance,Tax Inversion,Board Nationality,Reputational Costs,Under Sheltering Puzzle},
  language     = {eng},
  note         = {Student Paper},
  title        = {Corporate Tax Inversions and Reputational Costs - A Study on Board-Level Patriotism and the Decision to Expatriate},
  year         = {2016},
}