There's No Place Like Home: The Profitability Gap between Headquarters and their Foreign Subsidiaries

Matthias Dischinger, Bodo Knoll and Nadine Riedel

Journal of Economics & Management Strategy, 2014, vol. 23, issue 2, 369-395

Abstract: Using data on European firms, this paper provides evidence that an overproportional fraction of multinational group profits accrues with the corporate headquarters. Quantitatively, the estimates suggest that headquarters are by around 25% more profitable than their foreign subsidiaries, whereas this gap tends to decline over time. The effect turns out to be robust against controlling for observed and unobserved heterogeneity between the entities. Analogous (although quantitatively smaller) effects are found for national groups. We discuss various welfare implications of our findings.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:23:y:2014:i:2:p:369-395

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