Corporate Expatriation, Inversions, and Mergers: Tax Issues
This report discusses relevant portions of the U.S. corporate income tax system and how inversions have commonly been structured. It also looks at how Congress and Department of the Treasury have reduced the benefits of inversions, including The American Jobs Creation Act, as well as post-2004 inversions and treasury regulations, and policy options.
Financial Constraints and the Internationalisation of Irish Firms
1. INTRODUCTION This paper investigates the effects of financial constraints on the internationalisation of Irish firms, through outward direct investment, since the financial crisis. In recent years, the redomiciling of Public Limited Companies (PLCs) in Ireland has posed new difficulties in interpreting developments in Irish macroeconomic statistics. Building on the estimates of Fitzgerald (2013), the contribution of these redomiciled PLCs to the international investment of all firms headquartered in Ireland is estimated. Next, using micro-level data, which facilitate the exclusion of redomiciled PLCs from the dataset, the influence of firm specific financial constraints on the international expansion of Irish firms is examined. Since 2008, the increased number of PLCs relocating their headquarters to Ireland, in the absence of meaningful economic activities, has translated into inflated Irish macroeconomic statistics (Everett 2012, Fitzgerald 2013, Lane, 2014). Difficulties in ascertaining the precise magnitude of this redomiciling effect has made empirical analysis of Irish macroeconomic developments challenging. The first objective of this paper is to highlight the contribution of redomiciled PLCs to aggregate outward direct investment statistics. The estimates of these activities suggest that at end-2013 redomiciled PLCs accounted for 41 per cent of the outstanding stock of outward direct investment by Irish firms. Next, to address the question of whether financial constraints influence a firm's probability of internationalisation, the empirical analysis exploits a panel dataset of 2,516 Irish firms, between 2004 and 2012. The results provide support for the hypothesis that financial constraints determine the probability of a firm's entry into a foreign market by establishing foreign affiliates. These findings highlight the importance of firm specific financial constraints as determinants of firm internationalisation. Specifically, the empirical analysis shows that internal cash flow matters for internationalisation, where greater cash flow increases the probability of becoming international. The empirical evidence also suggests that more highly indebted firms, that have pledged collateral for external credit, have a relatively greater likelihood of being outward direct investors. Furthermore, the analysis distinguishes between large firms and small firms, on the grounds that the probability of internationalisation increases with firm size. The estimates indicate that financial constraints are binding for large firms but not small firms, consistent with the idea that smaller firms are relatively less inclined to engage in internationalisation (Helpman et al 2004, Buch et al 2014). In addition, the magnitude of firm specific financial constraints determining the probability of internationalisation is found to be heterogeneous across key Irish economic sectors. The theoretical motivation underpinning this research relates to the factors that determine the expansion of firms internationally. Firms' access to foreign markets can take place through a number of channels including exports, outward direct investment and licensing agreements with foreign firms. In the model of Melitz (2003) firm entry into a foreign market through exports requires costs, assumed to be financed internally or without an external financing premium, which can only be overcome by sufficiently productive firms. Only the largest and most productive firms, however, access foreign markets by engaging in outward direct investment Helpman et al (2004). Greenaway et al (2007) find that the financial health of firms is a factor in determining their internationalisation through exports. Chaney (2013) builds upon the model of Melitz (2003) by incorporating liquidity constraints, and shows that liquidity constrained firms may be prevented from accessing foreign markets through exports. The role financial factors play in the decision of firms to engage in international expansion through outward direct investment has been explored in Buch et al (2014). …
Corporations and the Market for Law
The state competition for corporate law has long been studied as a distinct phenomenon. Under the traditional view, corporations are subject to a unique choice-of-law rule, the internal affairs doctrine (IAD). This rule is explained as a historical accident, or by the special logistics of the corporate contract. The resulting market for corporate law appears to have special characteristics, particularly including the dominance by the single state of Delaware. This paper challenges the traditional view. It shows that the corporate law market is best understood as a special application of the general market for law. Any differences are matters of degree rather than kind, and are explained by considerations underlying enforcement of all choice-of-law contracts rather than by factors unique to corporations. It follows that theories of corporate competition that ignore the broader law market context are incomplete, and that the competition for corporate law carries lessons for the law market generally. Moreover, the connection between the corporate and other law markets has implications for the nature of corporate law, the constitutional status of the IAD, the scope of the IAD, and for the relationship between state and federal law.