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Host country corporate income tax rate and foreign subsidiary survival

Author

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  • Farah, Bassam
  • Elias, Rida
  • Chakravarty, Dwarka
  • Beamish, Paul

Abstract

Host country tax considerations are critical to multinational enterprise (MNE) foreign direct investment decisions, but understudied in international business (IB) research. We address this gap by examining the relationship between host country corporate income tax rates (HCCITRs) and foreign subsidiary survival. We develop our hypothesis drawing upon location/country-specific advantage theory and international tax literature. Our longitudinal sample (1990–2013) comprises 13,468 MNE subsidiaries in 78 countries. Results indicate a one standard deviation (7.7 %) decrease in HCCITR increases subsidiary survival probability (at any given time) by 33 %. This effect is stronger compared to several well studied explanatory variables in IB survival analysis.

Suggested Citation

  • Farah, Bassam & Elias, Rida & Chakravarty, Dwarka & Beamish, Paul, 2021. "Host country corporate income tax rate and foreign subsidiary survival," Journal of World Business, Elsevier, vol. 56(2).
    • Handle: RePEc:eee:worbus:v:56:y:2021:i:2:s1090951620301140
    DOI: 10.1016/j.jwb.2020.101186
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    Citations

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    Cited by:

    1. Xiao, Shufeng & Tian, Xiaocong, 2023. "Performance feedback and location choice of foreign direct investment," International Business Review, Elsevier, vol. 32(4).
    2. Changjun Yi & Xiaoyang Zhao & Ying Huang & Jie Yu & Jipeng Zhang, 2022. "Migration networks and subsidiary survival of EMNCs: The mediating effect of entry mode," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2299-2310, September.
    3. Tiemei Li & Michel Magnan & Yaqi Shi, 2022. "Governance tensions in MNCs’ accounting quality," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(8), pages 1641-1669, October.
    4. Getachew, Yamlaksira S. & Beamish, Paul W., 2021. "Unbundling the effects of host-country institutions on foreign subsidiary survival: A case for subsidiary heterogeneity," Journal of World Business, Elsevier, vol. 56(4).
    5. Farah, Bassam & Chakravarty, Dwarka & Dau, Luis & Beamish, Paul W., 2022. "Multinational enterprise parent-subsidiary governance and survival," Journal of World Business, Elsevier, vol. 57(2).
    6. Nguyen, Ha Thi Thu & Larimo, Jorma & Ghauri, Pervez, 2022. "Understanding foreign divestment: The impacts of economic and political friction," Journal of Business Research, Elsevier, vol. 139(C), pages 675-691.
    7. Salamaga Marcin, 2022. "Comparative Analysis of FDI Duration in the Visegrád Group Member States, Using Mortality Tables: A Sectoral Approach," Econometrics. Advances in Applied Data Analysis, Sciendo, vol. 26(2), pages 1-14, June.

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