Corporate Governance and Profit Shifting: The Role of the Audit Committee

Forthcoming, European Accounting Review

67 Pages Posted: 26 Aug 2018 Last revised: 2 Nov 2021

See all articles by Fotis Delis

Fotis Delis

European Commission, Joint Research Centre

Manthos D. Delis

Audencia Business School

Panagiotis Karavitis

University of Glasgow - Adam Smith Business School

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Date Written: November 01, 2021

Abstract

We examine tax-motivated profit shifting as the outcome of corporate governance characteristics in multinational enterprises (MNEs). We propose a novel subsidiary-year measure of profit shifting, estimated from the responses of subsidiary profits to exogenous parent earnings shocks. Subsequently, we hypothesize that audit committee size and experience, as well as CEO duality are key factors affecting profit shifting. Our baseline results show that increasing audit committee size by one standard deviation increases profit shifting by an economically significant 7.8%. We also find that this positive effect reverses for MNEs with higher numbers of audit committee members who have audit expertise and for MNEs without CEO duality.

Keywords: Corporate governance; Profit shifting; Audit committee; Directors’ experience; CEO duality

JEL Classification: F23, H25, H26, H32, M41

Suggested Citation

Delis, Fotis and Delis, Manthos D. and Karavitis, Panagiotis and Klassen, Kenneth, Corporate Governance and Profit Shifting: The Role of the Audit Committee (November 01, 2021). Forthcoming, European Accounting Review, Available at SSRN: https://ssrn.com/abstract=3232114 or http://dx.doi.org/10.2139/ssrn.3232114

Fotis Delis

European Commission, Joint Research Centre ( email )

Seville
Spain

Manthos D. Delis

Audencia Business School ( email )

8 Road Joneliere
BP 31222
Nantes Cedex 3, 44312
France

Panagiotis Karavitis

University of Glasgow - Adam Smith Business School ( email )

2 Discovery Place, Room 511 Glasgow
G11 6EY
United Kingdom

Kenneth Klassen (Contact Author)

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)

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