Skip to main content

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

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.

This is a preview of subscription content, access via your institution.

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6

Notes

  1. This algorithm was used to preserve the central position of nodes with a high connectivity to the core. The parameter with the best trade-off regarding disposition of the node and figure readability was selected.

References

  • Aalbers, M. (2018). Financial geography I: Geographies of tax. Progress in Human Geography, 42(6), 916–927.

    Article  Google Scholar 

  • 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 

  • 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.

    Article  Google Scholar 

  • 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 

  • 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 

  • Baldacchino, G. (2018). Mainstreaming of the study of small states and territories. Small States and Territories, 1(1), 3–16.

    Google Scholar 

  • 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.

    Article  Google Scholar 

  • Briguglio, L. (2010). Small states and the European Union: Economic perspectives. London: Routledge.

    Google Scholar 

  • Brook, C., & McGrew, A. (2013). Asia-Pacific in the new world order. London: Routledge.

    Google Scholar 

  • 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.

    Chapter  Google Scholar 

  • Buckley, P., Cross, A., Forsans, N., & Horn, S. (2010). The rise of the Asian multinational firm. Asian Business & Management, 9(3), 293–297.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Caves, R. (1974). Multinational firms, competition, and productivity in host-country markets. Economica, 41(162), 176–193.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Damgaard, J., Elkjaer, T., & Johannsen, N. (2018). Piercing the veil. Finance and Development, 55(2), 51–53.

    Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Desai, M., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145–179.

    Article  Google Scholar 

  • Dharmapala, D., & Hines, J. (2009). Which countries become tax havens? Journal of Public Economics, 93(9–10), 1058–1068.

    Article  Google Scholar 

  • Dicken, P. (2011). Global Shift: Mapping the changing contours of the world economy (6th ed.). New York: The Guilford Press.

    Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Chapter  Google Scholar 

  • Dunning, J., & Lundan, S. (2008). Multinational enterprises and the global economy. Cheltenham: Edward Elgar.

    Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Forsgren, M. (2013). Theories of the multinational firm: A multidimensional creature in the global economy (2nd ed.). Cheltenham: Edward Elgar.

    Google Scholar 

  • Forstater, M. (2018). Tax and development: New frontiers of research and action. CGD Policy Paper, 118.

  • 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 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Haberly, D., & Wójcik, D. (2015). Regional blocks and imperial legacies: Mapping the global offshore FDI network. Economic Geography, 91(3), 251–280.

    Article  Google Scholar 

  • Hemmert, M., & Meyer-Ohle, H. (2014). Outward globalization and collaboration in Asia: Revisiting the global business landscape. Asian Business & Management, 13(3), 191–195.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • HKSTATD. (2018). Offshore trade in goods. Retrieved from https://www.censtatd.gov.hk/hkstat/sub/so454.jsp.

  • Hong, Q., & Smart, M. (2010). In praise of tax havens: International tax planning and foreign direct investment. European Economic Review, 54(1), 82–95.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Horner, R. (2014). Strategic decoupling, recoupling and global production networks: India’s pharmaceutical industry. Journal of Economic Geography, 14(6), 1117–1140.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Jones, C., & Temouri, Y. (2016). The determinants of tax haven FDI. Journal of World Business, 51(2), 237–250.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Kratke, S. (2014). Global pharmaceutical and biotechnology firms’ linkages in the world city network. Urban Studies, 51(6), 1196–1213.

    Article  Google Scholar 

  • Lai, K. (2012). Differentiated markets: Shanghai, Beijing and Hong Kong in China’s financial center network. Urban Studies, 49(6), 1275–1296.

    Article  Google Scholar 

  • Markusen, J. (1995). The boundaries of multinational enterprises and the theory of international trade. Journal of Economic Perspectives, 9(2), 169–189.

    Article  Google Scholar 

  • 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 

  • 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.

    Article  Google Scholar 

  • 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 

  • 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.

    Article  Google Scholar 

  • OECD. (2018). Base erosion and profit sharing [website]. Retrieved from http://www.oecd.org/tax/beps/.

  • Palan, R., Murphy, R., & Chavagneux, C. (2009). Tax Havens: How globalization really works. Ithaca, NY: Cornell University Press.

    Google Scholar 

  • 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.

    Chapter  Google Scholar 

  • Roberts, S. (1995). Small place, big money: The Cayman Islands and the international financial system. Economic Geography, 71(3), 237–256.

    Article  Google Scholar 

  • Robinson, J. (2002). Global and World Cities: A view from off the map. International Journal of Urban and Regional Research, 26(3), 531–554.

    Article  Google Scholar 

  • Roca, E. (2018). Price interdependence among equity markets in the Asia-Pacific region: Focus on Australia and ASEAN. New York, NY: Routledge.

    Book  Google Scholar 

  • Rugman, A., & Verbeke, A. (2004). A perspective on regional and global strategies of multinational enterprises. Journal of International Business Studies, 35(1), 3–18.

    Article  Google Scholar 

  • Schotter, A., Mudambi, R., Doz, Y., & Gaur, A. (2017). Boundary spanning in global organizations. Journal of Management Studies, 54(4), 403–421.

    Article  Google Scholar 

  • 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.

  • Sigler, T. (2013). Relational cities: Doha, Panama City, and Dubai as 21st century entrepôts. Urban Geography, 34(5), 612–633.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

  • 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.

  • Taylor, P., & Derudder, B. (2018). World city network: A global urban analysis. New York, NY: Routledge.

    Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • 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.

    Chapter  Google Scholar 

  • Wall, R., & van der Knaap, G. (2011). Sectoral differentiation and network structure within contemporary worldwide corporate networks. Economic Geography, 87(3), 267–308.

    Article  Google Scholar 

  • Williamson, P., & Yin, E. (2014). Accelerated innovation: The new challenge from China. MIT Sloan Management Review, 55(4), 27.

    Google Scholar 

  • Wójcik, D. (2013). Where governance fails: Advanced business services and the offshore world. Progress in Human Geography, 37(3), 330–347.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Xiao, G. (2004). People’s Republic of China’s Round-Tripping FDI: Scale, causes and implications (No. 7). ADB Institute Discussion Papers.

  • 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.

    Article  Google Scholar 

  • 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.

    Article  Google Scholar 

  • Yeung, H., & Coe, N. (2015). Toward a dynamic theory of global production networks. Economic Geography, 91(1), 29–58.

    Article  Google Scholar 

  • Zucman, G. (2015). The hidden wealth of nations: The scourge of Tax Havens. Chicago: University of Chicago Press.

    Book  Google Scholar 

Download references

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).

Author information

Authors and Affiliations

Authors

Corresponding author

Correspondence to Kirsten Martinus.

Electronic supplementary material

Below is the link to the electronic supplementary material.

Supplementary material 1 (DOCX 19 kb)

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Martinus, K., Sigler, T., Iacopini, I. et al. The role of tax havens and offshore financial centers in Asia-Pacific networks: evidence from firm-subsidiary connections. Asian Bus Manage 18, 389–411 (2019). https://doi.org/10.1057/s41291-018-00051-1

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1057/s41291-018-00051-1

Keywords

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