Panagiotis Karavitis

Bio: Panagiotis Karavitis is an academic researcher from University of Glasgow. The author has contributed to research in topics: Profit (economics) & Multinational corporation. The author has an hindex of 2, co-authored 11 publications receiving 20 citations.

Corporate Social Responsibility and Profit Shifting

Abstract: In this work we investigate the relationship between corporate social responsibility (CSR) and profit shifting. First, we employ worldwide data for parent firms and their foreign subsidiaries to derive a profit shifting measure. Then, drawing on legitimacy theory and risk-management strategy, we find corporate social responsibility to be positively correlated with profit shifting. In addition, we find this relationship to be stronger in parent firms in countries under the territorial tax system. We perform a battery of sensitivity tests and robustness checks to corroborate our findings. By and large, our results suggest that multinational firms with higher CSR scores shift larger amounts of profits to their low-tax foreign subsidiaries, potentially indicating strategic planning in the choice of CSR investments by multinational enterprises.

Profit shifting and tax‐rate uncertainty

Abstract: Using firm‐level data for 1,084 parent firms in 24 countries and for 9,497 subsidiaries in 54 countries, we show that tax‐motivated profit shifting is larger among subsidiaries in countries that have stable corporate tax rates over time. Our findings further suggest that firms move away from transfer pricing and toward intragroup debt shifting that has lower adjustment costs. Our results are robust to several identification methods and respecifications, and they highlight the important role of tax‐rate uncertainty in the profit‐shifting decision while pointing to an adjustment away from more costly transfer pricing and toward debt shifting.

Profit Shifting and Tax Uncertainty

Abstract: We demonstrate the importance for the potency of profit shifting activity of risk factors related to macroeconomic and fiscal stability in countries where multinational subsidiaries reside. Using firm-level data for 1,241 parent firms from 24 countries and 12,698 subsidiaries in 43 countries, we first identify prevalent profit-shifting in periods (or subsidiaries’ countries) with low macroeconomic risk. Subsequently, we show that even in periods of low macroeconomic risk, profit-shifting is stronger to subsidiaries in countries with stable corporate tax rates over time (low fiscal-risk countries). We contend that especially low fiscal risk is a prerequisite for identifying significant profit-shifting.

Corporate Social Responsibility and Profit Shifting

Abstract: This paper studies the relationship between corporate social responsibility (CSR) and profit shifting. Using a profit-shifting measure derived from worldwide data for parent firms and their foreign subsidiaries, we find that corporate social responsibility is positively and significantly associated with profit shifting, consistent with the legitimacy theory. Our findings are robust to a battery of sensitivity and endogeneity tests. In turn, we show that this positive relationship between MNEs’ profit shifting and CSR is exacerbated when MNEs are headquartered in countries where consumer activism and the freedom of media are higher, and thus the need for “social capital” is higher, too. Finally, we find that when MNEs are headquartered in countries with worse rule of law and government effectiveness this positive relationship between MNEs’ profit shifting and CSR is also exacerbated. Taken together, these findings highlight the importance of the multi-country setting in studying the relationship between CSR and tax aggressiveness. Overall, our evidence suggests that multinational firms with higher CSR scores shift larger amounts of profits to their low-tax foreign subsidiaries, potentially indicating strategic planning in the choice of CSR investments by multinational enterprises.

Competition and the cost of debt

Abstract: This paper empirically shows that the cost of bank debt is systematically higher for firms that operate in competitive product markets. Using various proxies for product market competition, and reductions of import tariff rates to capture exogenous changes to a firm's competitive environment, I find that competition has a significantly positive effect on the cost of bank debt. Moreover, the analysis reveals that the effect of competition is greater in industries in which small firms face financially strong rivals, in industries with intense strategic interactions between firms, and in illiquid industries. Overall, these findings suggest that banks price financial contracts by taking into account the risk that arises from product market competition.