Using hand-collected data on 691 corporate inversions from 11 home countries into 45 host destinations in 1996-2013, we document that corporations invert to destinations with lower tax rates and similar governance standards. Indeed, passage of bilateral double taxation treaties (DTTs), which provide tax incentives for inversions, and bilateral tax information exchange agreements (TIEAs), which improve transparency of tax havens, leads to an increase in corporate inversions. Further, shareholders support tax-driven inversions but shun inversions into weakly governed countries: A 1% point lower tax rate in the host destination (vis-à-vis the home country) is associated with a 0.6% drop in effective tax rates and a 0.4% increase in firm value, respectively. Institutional ownership only increases when firms invert into well-governed tax havens. Our findings suggest that corporate inversions, despite their negative publicity, are typically in shareholders’ interest.
Professor of Finance
Korea University Business School
Michael I. Sovern Professor of Law
Columbia Law School