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Title:There's no place like home: the profitability gap between headquarters and their foreign subsidiaries PDF Logo
Authors:Dischinger, Matthias
Riedel, Nadine
Issue Date:2009
Series/Report no.:CESifo working paper 2866
Abstract:Using a large data set of European firms, this paper provides evidence that operations at multinational headquarters are significantly more profitable than operations at their foreign subsidiaries. The effect turns out to be robust and quantitatively large. Our findings suggest that the profitability gap is partly driven by agency costs which arise if value–driving functions are managed by a subsidiary that is geographically separated from the headquarters management. In line with falling communication and travel costs over the last decade, the profitability gap is shown to decline over time. Apart from that, our results indicate that a higher competitiveness of multinational firms in their home markets also contributes to the profitability gap. We discuss various implications of our findings.
Subjects:profit distribution
multinational enterprise
corporate taxes
JEL:F23
H25
L25
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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