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What are the benefits of housing the headquarters of multinational corporations?

What are the benefits of housing the headquarters of multinational corporations?. Discussion Johannes Voget Oxford University Centre for Business Taxation. What are the disadvantages of foreign multinationals?. No one complains about Greenfield investment.

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What are the benefits of housing the headquarters of multinational corporations?

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  1. What are the benefits of housing the headquarters of multinational corporations? Discussion Johannes Voget Oxford University Centre for Business Taxation

  2. What are the disadvantages of foreign multinationals? • No one complains about Greenfield investment. • However, most FDI is in the form of cross-border M&As. Foreign acquirers not always welcome.

  3. Before reading your paper • Ferrovial acquired BAA • EDF acquired British Energy • BMW acquired Rover • GM owns Vauxhall • UK not scared of specialisation in ownership • Santander acquired Abbey • Shire HQ emigrated to Ireland

  4. Negative effects of foreign HQ • Loss of skills (key industries) • Less investment • Less employment • Synergies cause M&As, target smaller than acquirer, agglomeration effect with respect to synergies. • Objective function of MNEs has a home bias • Due to home bias in the board? • Due to importance of lobbying in the home market? (bailouts, government contracts)

  5. Negative effects of foreign HQ, 2 • Loss in HQ services (example NL: lawyers, accountants, location-specific skills) • Loss in taxes or tax enforcement (worldwide taxation, CFC rules, profit shifting) • Loss of outside options for politicians

  6. Focus on plant survival Size and geographical spread Ownership

  7. Twist Size and geographical spread Ownership • 92 out of 3195 Foreign MNEs have a sub-headquarter in the UK. This increases the plants’ survival probability. • Interpretation: Lower communication/ coordination costs increase plant survival. UKHQ

  8. What makes them special? Size and geographical spread SubHQ SubHQ Ownership • 92 out of 3195 Foreign MNEs out of 275,616 enterprises. • In which ways do these 92 enterprises differ from the rest? Country of origin? Industry? • Comparable group in UK MNEs? • Relevant sample? • Are MNE plant closures worse? (Creative destruction) UKHQ

  9. Why is there a sub-HQ? • Randomly ? • Inherited? Or was it put there? • Result of M&A (horizontal vs. vertical)? Or result of Greenfield investment? • Causality? Would you put a HQ there if you plan to exit? • What are good explanations for existence of HQ? (Instruments) What does HQ proxy for?

  10. What does a HQ proxy for? • more complex within the UK: • They certainly deserve a sub HQ • Could you select a similar group of UK MNEs?

  11. Sub HQ conditional on rest of firm • Sub HQ if the foreign ultimate HQ is far away. • Less likely to relocate production (transportation costs)? • Sub HQ if the UK part is relatively big compared to other parts of the MNE. • Globally less plants/ less countries than other foreign MNEs.? • Sub HQ signals location specific activity

  12. Econometrics Size and geographical spread Ownership • What about switching groups (Markov chain) • Test for heteroscedasticity • Several cross-sections (robustness to clustering) • Why not hazard rate? UKHQ

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