Advertisement

The role of tax havens and offshore financial centers in Asia-Pacific networks: evidence from firm-subsidiary connections

  • Kirsten Martinus
  • Thomas Sigler
  • Iacopo Iacopini
  • Ben Derudder
Original Article

Abstract

This paper adds a network dimension to locational theories on multinational corporate strategy to explain how tax havens and offshore financial centers (THOFC) are integrated into the structures of firms listed on five stock exchanges of the Asia-Pacific region. Applying network analysis to firm-subsidiary connections of these listed firms, it highlights differences in the connectivity structures as well as the role of THOFC in exchange subnetworks. It finds considerable variation in the complexity of corporate structures by stock exchange which can be explained by national context and multinational location strategies, and that the prevalence of THOFC within corporate structures cannot be underestimated.

Keywords

Tax havens Offshore financial centers Social network analysis Economic geography Financial markets 

Notes

Acknowledgements

This work was supported by Australian Research Council (Grant Number DP170104359), as well as the British Engineering and Physical Sciences Research Council (Grant Number EP/N013492/1 and EP/N510129/1).

Supplementary material

41291_2018_51_MOESM1_ESM.docx (20 kb)
Supplementary material 1 (DOCX 19 kb)

References

  1. Aalbers, M. (2018). Financial geography I: Geographies of tax. Progress in Human Geography, 42(6), 916–927.Google Scholar
  2. Alderson, A., Beckfield, J., & Sprague-Jones, J. (2010). Intercity relations and globalization: The evolution of the global urban hierarchy, 1981–2007. Urban Studies, 47(9), 1899–1923.Google Scholar
  3. Alstadsæter, A., Johannesen, N., & Zucman, G. (2018). Who owns the wealth in tax havens? Macro evidence and implications for global inequality. Journal of Public Economics, 162, 89–100.Google Scholar
  4. Alvarez-Hamelina, I., Dall’Astaa, L., Barrata, A., & Vespignani, A. (2006). K-Core decomposition: A tool for the visualization of large scale networks. Advances in Neural Information Processing Systems, 18, 41.Google Scholar
  5. Andreff, W. (2016). Outward foreign direct investment form BRIC countries. Comparing the strategies of Brazilian, Russian. Indian and Chinese multinational companies. The European Journal of Comparative Economies, 12(2), 79–131.Google Scholar
  6. Baldacchino, G. (2018). Mainstreaming of the study of small states and territories. Small States and Territories, 1(1), 3–16.Google Scholar
  7. Blondel, V., Guillaume, J.-L., Lambiotte, R., & Lefebvre, E. (2008). Fast unfolding of communities in large networks. Journal of Statistical Mechanics: Theory and Experiment, 10, P10008.Google Scholar
  8. Briguglio, L. (2010). Small states and the European Union: Economic perspectives. London: Routledge.Google Scholar
  9. Brook, C., & McGrew, A. (2013). Asia-Pacific in the new world order. London: Routledge.Google Scholar
  10. Buckley, P. (1985). A critical view of theories of the multinational enterprise. In P. Buckley & M. Casson (Eds.), The economic theory of the multinational enterprise (pp. 1–19). London: Palgrave Macmillan.Google Scholar
  11. Buckley, P., Cross, A., Forsans, N., & Horn, S. (2010). The rise of the Asian multinational firm. Asian Business & Management, 9(3), 293–297.Google Scholar
  12. Buckley, P., Sutherland, D., Voss, H., & El-Gohari, A. (2013). The economic geography of offshore incorporation in tax havens and offshore financial centers: The case of Chinese MNEs. Journal of Economic Geography, 15(1), 103–128.Google Scholar
  13. Caves, R. (1974). Multinational firms, competition, and productivity in host-country markets. Economica, 41(162), 176–193.Google Scholar
  14. Cobham, A., Jansky, P., & Meinzer, M. (2015). The financial secrecy index: Shredding new light on the geography of secrecy. Economic Geography, 91(3), 281–303.Google Scholar
  15. Coe, N., Hess, M., Yeung, H., Dicken, P., & Henderson, J. (2004). ‘Globalizing’ regional development: A global production networks perspective. Transactions of the Institute of British Geographers, 29(4), 468–484.Google Scholar
  16. Crescenzi, R., Pietrobelli, C., & Rabellotti, R. (2016). Regional strategic assets and the location strategies of emerging countries’ multinationals in Europe. European Planning Studies, 24(4), 645–667.Google Scholar
  17. Damgaard, J., Elkjaer, T., & Johannsen, N. (2018). Piercing the veil. Finance and Development, 55(2), 51–53.Google Scholar
  18. Delios, A., & Henisz, W. (2003). Political hazards, experience, and sequential entry strategies: The international expansion of Japanese firms, 1980–1998. Strategic Management Journal, 24(11), 1153–1164.Google Scholar
  19. Derudder, B., Cao, Z., Liu, X., Shen, W., Dai, L., et al. (2018). Changing connectivity of Chinese cities in the World City Network, 2010–2016. Chinese Geographical Science, 28(2), 183–201.Google Scholar
  20. Desai, M., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145–179.Google Scholar
  21. Dharmapala, D., & Hines, J. (2009). Which countries become tax havens? Journal of Public Economics, 93(9–10), 1058–1068.Google Scholar
  22. Dicken, P. (2011). Global Shift: Mapping the changing contours of the world economy (6th ed.). New York: The Guilford Press.Google Scholar
  23. Dunning, J. (2001). The eclectic (OLI) paradigm of international production: Past, present and future. International Journal of the Economics of Business, 8(2), 173–190.Google Scholar
  24. Dunning, J. (2014). Location and the multinational enterprise: A neglected factor? In J. Cantwell (Ed.), Location of international business activities (pp. 35–62). London: Palgrave Macmillan.Google Scholar
  25. Dunning, J., & Lundan, S. (2008). Multinational enterprises and the global economy. Cheltenham: Edward Elgar.Google Scholar
  26. Fan, D., Cui, L., Li, Y., & Zhu, C. (2016). Localized learning by emerging multinational enterprises in developed host countries: A fuzzy-set analysis of Chinese foreign direct investment in Australia. International Business Review, 25(1A), 187–203.Google Scholar
  27. Fichtner, J. (2016). The anatomy of the Cayman Islands offshore financial center: Anglo-America, Japan, and the role of hedge funds. Review of International Political Economy, 23(6), 1034–1063.Google Scholar
  28. Forsgren, M. (2013). Theories of the multinational firm: A multidimensional creature in the global economy (2nd ed.). Cheltenham: Edward Elgar.Google Scholar
  29. Forstater, M. (2018). Tax and development: New frontiers of research and action. CGD Policy Paper, 118.Google Scholar
  30. Garcia-Bernardo, J., Fichtner, J., Takes, F., & Heemskerk, E. (2017). Uncovering offshore financial centers: Conduits and sinks in the global corporate ownership network. Scientific Reports, 7(6246), 1–10.Google Scholar
  31. Grant, R., & Nijman, J. (2002). Globalization and the corporate geography of cities in the less-developed world. Annals of the Association of American Geographers, 92(2), 320–340.Google Scholar
  32. Guo, C., & Lv, P. (2018). Network position of independent director in cross-border mergers and acquisitions. International Journal of Emerging Markets, 13(1), 118–135.Google Scholar
  33. Haberly, D., & Wójcik, D. (2015). Regional blocks and imperial legacies: Mapping the global offshore FDI network. Economic Geography, 91(3), 251–280.Google Scholar
  34. Hemmert, M., & Meyer-Ohle, H. (2014). Outward globalization and collaboration in Asia: Revisiting the global business landscape. Asian Business & Management, 13(3), 191–195.Google Scholar
  35. Hennemann, S., & Derudder, B. (2014). An alternative approach to the calculation and analysis of connectivity in the world city network. Environment and Planning B, 41(3), 392–412.Google Scholar
  36. HKSTATD. (2018). Offshore trade in goods. Retrieved from https://www.censtatd.gov.hk/hkstat/sub/so454.jsp.
  37. Hong, Q., & Smart, M. (2010). In praise of tax havens: International tax planning and foreign direct investment. European Economic Review, 54(1), 82–95.Google Scholar
  38. Horn, S., Forsans, N., & Cross, A. (2010). The strategies of Japanese firms in emerging markets: The case of the automobile industry in India. Asian Business & Management, 9(3), 341–378.Google Scholar
  39. Horner, R. (2014). Strategic decoupling, recoupling and global production networks: India’s pharmaceutical industry. Journal of Economic Geography, 14(6), 1117–1140.Google Scholar
  40. Hutching, K., & Murray, G. (2002). Australian expatriates’ experiences in working behind the Bamboo Curtin: An examination of guanxi in post-Communist China. Asian Business & Management, 1(3), 373–393.Google Scholar
  41. Jacomy, M., Venturini, T., Heymann, S., & Bastian, M. (2014). ForceAtlas2, a continuous graph layout algorithm for handy network visualization designed for the Gephi software. PLoS ONE, 9(6), e98679.Google Scholar
  42. Janský, P., & Prats, A. (2015). International profit-shifting out of developing countries and the role of tax havens. Development Policy Review, 33(3), 271–292.Google Scholar
  43. Jones, C., & Temouri, Y. (2016). The determinants of tax haven FDI. Journal of World Business, 51(2), 237–250.Google Scholar
  44. Jun, I., Sheldon, P., & Rhee, J. (2010). Business groups and regulatory institutions: Korea’s chaebols, cross-company shareholding and the East Asian crisis. Asian Business & Management, 9(4), 499–523.Google Scholar
  45. Kemme, D., Parikh, B., & Steigner, T. (2017). Tax havens, tax evasion and tax information exchange agreements in the OECD. European Financial Management, 23(3), 519–542.Google Scholar
  46. Kim, Y., & Gray, S. (2017). Internationalization strategy and the home-regionalization hypothesis: The case of Australian multinational enterprises. Australian Journal of Management, 42(4), 673–691.Google Scholar
  47. Kratke, S. (2014). Global pharmaceutical and biotechnology firms’ linkages in the world city network. Urban Studies, 51(6), 1196–1213.Google Scholar
  48. Lai, K. (2012). Differentiated markets: Shanghai, Beijing and Hong Kong in China’s financial center network. Urban Studies, 49(6), 1275–1296.Google Scholar
  49. Markusen, J. (1995). The boundaries of multinational enterprises and the theory of international trade. Journal of Economic Perspectives, 9(2), 169–189.Google Scholar
  50. Martinus, K., & Sigler, T. (2018). Global city clusters: Theorizing spatial and non-spatial proximity in inter-urban firm networks. Regional Studies, 52(8), 1041–1052.Google Scholar
  51. Martinus, K., Sigler, T., Searle, G., & Tonts, M. (2015). Strategic globalizing centers and sub-network geometries: A social network analysis of multi-scalar energy networks. Geoforum, 64, 78–89.Google Scholar
  52. McCarthy, K., & Dolfsma, W. (2016). Market performance: Liquidity or knowledge? Evidence from the market for corporate control. In H. Hanappi, S. Katsikides, & M. Scholz-Wäckerle (Eds.), Theory and method of evolutionary political economy (pp. 115–126). London: Routledge.Google Scholar
  53. Mir, R., & Mir, A. (2005). Catalysis, not leapfrog: An institutionalist argument for a limited role of ICTs in India’s development. Asian Business & Management, 4(4), 411–429.Google Scholar
  54. OECD. (2018). Base erosion and profit sharing [website]. Retrieved from http://www.oecd.org/tax/beps/.
  55. Palan, R., Murphy, R., & Chavagneux, C. (2009). Tax Havens: How globalization really works. Ithaca, NY: Cornell University Press.Google Scholar
  56. Peck, J., Brenner, N., & Theodore, N. (2018). Chapter 1: Actually existing neoliberalism. In D. Cahill, M. Cooper, M. Konings, & D. Primrose (Eds.), The SAGE handbook of neoliberalism (pp. 3–15). London: Sage.Google Scholar
  57. Roberts, S. (1995). Small place, big money: The Cayman Islands and the international financial system. Economic Geography, 71(3), 237–256.Google Scholar
  58. Robinson, J. (2002). Global and World Cities: A view from off the map. International Journal of Urban and Regional Research, 26(3), 531–554.Google Scholar
  59. Roca, E. (2018). Price interdependence among equity markets in the Asia-Pacific region: Focus on Australia and ASEAN. New York, NY: Routledge.Google Scholar
  60. Rugman, A., & Verbeke, A. (2004). A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35(1), 3–18.Google Scholar
  61. Schotter, A., Mudambi, R., Doz, Y., & Gaur, A. (2017). Boundary spanning in global organizations. Journal of Management Studies, 54(4), 403–421.Google Scholar
  62. Shaxson, N. (2014). China leaks: How the BVI became China’s foreign tax haven of choice. Tax Justice Network, January 14. Retrieved from https://goo.gl/phbPny.
  63. Sigler, T. (2013). Relational cities: Doha, Panama City, and Dubai as 21st century entrepôts. Urban Geography, 34(5), 612–633.Google Scholar
  64. Sigler, T., & Martinus, K. (2017). Extending beyond ‘world cities’ in World City Network (WCN) research: Urban positionality and economic linkages through the Australia-based corporate network. Environment and Planning A, 49(12), 2916–2937.Google Scholar
  65. Steier, L. (2009). Familial capitalism in global institutional contexts: Implications for corporate governance and entrepreneurship in East Asia. Asia Pacific Journal of Management, 26(3), 513–535.Google Scholar
  66. Sutherland, D., & Matthews, B. (2009). ‘Round Tripping’ or ‘Capital Augmenting’ OFDI? Chinese outward investment and the Caribbean tax havens. Paper prepared for Leverhulme Centre for Research on Globalisation and Economic Policy (GEP), University of Nottingham, 14–15 January.Google Scholar
  67. Sutherland, D., Matthews, B., & El-Gohari, A. (2012). An exploration of how Chinese companies use tax havens and offshore financial centers: ‘Round-tripping’ or ‘capital-augmenting OFDI? In X. Fu (Ed.), China’s role in global economic recovery. eBook ISBN: 9781136632495.Google Scholar
  68. Taylor, P., & Derudder, B. (2018). World city network: A global urban analysis. New York, NY: Routledge.Google Scholar
  69. Taylor, P., Derudder, B., Faulconbridge, M., Hoyler, M., & Ni, P. (2014). Advanced producer service firms as strategic networks, global cities as strategic places. Economic Geography, 90(3), 267–291.Google Scholar
  70. Taylor, P., Derudder, B., Hoyler, M., & Ni, P. (2013). New regional geographies of the world as practised by leading advanced producer service firms in 2010. Transactions of the Institute of British Geographers, 38(3), 497–511.Google Scholar
  71. Vedel, M., & Servais, P. (2017). More than just one middleman: On the value of differenct entry modes by SMEs in foreign markets. In S. Marinova, J. Larimo, & N. Nummela (Eds.), Value creation in international business (pp. 151–170). London: Palgrave Macmillan.Google Scholar
  72. Wall, R., & van der Knaap, G. (2011). Sectoral differentiation and network structure within contemporary worldwide corporate networks. Economic Geography, 87(3), 267–308.Google Scholar
  73. Williamson, P., & Yin, E. (2014). Accelerated innovation: The new challenge from China. MIT Sloan Management Review, 55(4), 27.Google Scholar
  74. Wójcik, D. (2013). Where governance fails: Advanced business services and the offshore world. Progress in Human Geography, 37(3), 330–347.Google Scholar
  75. Wójcik, D., Knight, E., & Pažitka, V. (2018). What turns cities into international financial centers? Analysis of cross-border investment banking 2000–2014. Journal of Economic Geography, 18(1), 1–33.Google Scholar
  76. Xiao, G. (2004). People’s Republic of China’s Round-Tripping FDI: Scale, causes and implications (No. 7). ADB Institute Discussion Papers.Google Scholar
  77. Yang, D., & Coe, N. (2009). The governance of global production networks and regional development: A case study of Taiwanese PC production networks. Growth and Change, 40(1), 30–53.Google Scholar
  78. Yeung, H. (2014). Governing the market in a globalizing era: Developmental states, global production networks and inter-firm dynamics in East Asia. Review of International Political Economy, 21(1), 70–101.Google Scholar
  79. Yeung, H., & Coe, N. (2015). Toward a dynamic theory of global production networks. Economic Geography, 91(1), 29–58.Google Scholar
  80. Zucman, G. (2015). The hidden wealth of nations: The scourge of Tax Havens. Chicago: University of Chicago Press.Google Scholar

Copyright information

© Springer Nature Limited 2018

Authors and Affiliations

  1. 1.Center for Regional DevelopmentThe University of Western AustraliaPerthAustralia
  2. 2.School of Earth and Environmental SciencesThe University of QueenslandSt LuciaAustralia
  3. 3.School of Mathematical SciencesQueen Mary University of LondonLondonUK
  4. 4.The Alan Turing Institute, The British LibraryLondonUK
  5. 5.Department of GeographyGhent UniversityGhentBelgium

Personalised recommendations