Corporate Tax Havens and Transparency

Abstract

In hand-collected subsidiary data on 17,331 publicly listed firms from 52 countries, we identify expropriation-related motives for establishing tax haven subsidiaries. First, Tax Information Exchange Agreements (TIEAs) increase average shareholder value of affected firms by 2.5 percent. Second, the effect is stronger for firms with more complex tax haven structures. Third, some firms respond to TIEAs by haven hopping, i.e., they move subsidiaries from affected to non-affected tax havens. Fourth, the shareholder effect is larger for firms with lower institutional ownership. This suggests that (i) tax havens are used for expropriation activities that go beyond pure tax saving activities and (ii) increased transparency is applauded by non-controlling shareholders.