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The Pricing of Profit Shifting

Author

Listed:
  • Fotis Delis

    (European Commission, Joint Research Centre)

  • Manthos D. Delis

    (Audencia Business School)

  • Sotirios Kokas

    (University of Essex - Essex Business School)

  • Luc Laeven

    (European Central Bank (ECB); Centre for Economic Policy Research (CEPR))

  • Steven Ongena

    (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))

Abstract

Profit shifting by multinational enterprises (MNEs) increases after-tax earnings but can expose firms to regulatory and reputational risks. We examine how stock markets price profit shifting using global profit shifting estimates from approximately 30,000 MNE-year observations between 2010 and 2020. We find that a one standard deviation increase in profit shifting is associated with 6.4% higher monthly stock returns, indicating that stock markets require compensation for the underlying risks. The identified effects become significant only after the initiation of the Base Erosion and Profit Shifting program and gain further strength following the implementation of the Tax Cuts and Jobs Act.

Suggested Citation

  • Fotis Delis & Manthos D. Delis & Sotirios Kokas & Luc Laeven & Steven Ongena, 2025. "The Pricing of Profit Shifting," Swiss Finance Institute Research Paper Series 25-62, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2562
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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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