Do tax havens create firm value?

• Published in: Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2017-02, Vol.42, p.198-220
• Main Authors: Choy, Siu Kai, Lai, Tat-Kei, Ng, Travis
• Format: Article
• Language: English
• Subjects: Corporate governance; Corporate tax; Economics and Finance; Event study; Firm value; Humanities and Social Sciences; Tax havens
• ISSN: 0929-1199; 1872-6313
• DOI: 10.1016/j.jcorpfin.2016.10.016

On October 11, 2011, a non-governmental organization called ActionAid published a report condemning the FTSE 100 firms for holding an unusually large number of subsidiaries in tax havens. Urging the government to implement appropriate actions, the report raised the firms' costs of holding tax haven subsidiaries. After this event, the stock prices of the nonfinancial firms experienced a 0.9% abnormal drop (corresponding to about £9billion in market capitalization). Those better-governed firms and those with larger shares of subsidiaries in tax havens experienced larger drops. We find some evidence that government scrutiny, reputation, and investor sentiment were plausible channels of such a negative impact. •A report by a NGO condemned the FTSE 100 firms for holding an unusually large number of subsidiaries in tax havens.•The report raised the firms' costs of holding tax haven subsidiaries.•Share prices of FTSE100 nonfinancial firms drop by 0.9% on average around the report date (or £ 9billion in market value).•Better-governed firms and firms with larger shares of subsidiaries in tax havens experienced larger drops.•We find some evidence that government scrutiny, reputation, and investor sentiment were plausible channels of the price drop.