Strategy or Gluttony? The Allocation of Ownership Rights to Strategic Assets within the Firm

Abstract

The creation and appropriation of value from strategic assets are at the heart of strategy. Despite extensive research on how and where value is created within multinational enterprises (MNEs), and the performance benefits from strategic assets, relatively little is known about the allocation of ownership rights within firms to strategic assets. Although MNEs can exploit international differences and allocate strategic asset ownership rights to income shielding locations, it often comes at the cost of shifting control and responsibility from value-creating subsidiaries. This study examines firms’ trade-offs in allocating ownership rights to strategic assets using a hand-collected confidential dataset on 102 MNEs on the types and locations of their strategic assets. The findings indicate that MNEs select locations based on tax and their need for coordination and regional expertise. We find evidence that MNEs are significantly likely to locate ownership of their strategic assets in regional hubs of expertise. However, MNEs with codifiable strategic assets are more likely to have ownership separated from value-creating activities and located in tax havens. The results also provide insight into when firms are not likely to engage in tax avoidance. When strategic assets are more difficult to monitor and control, firms are less likely to separate ownership from value-creating activities. As such, these findings imply that tax competition is not simply a “race to the bottom” in that there are factors that inhibit firms from fully capitalizing on tax policies. From a policy perspective, this research provides insight into the policies that can attract MNE location choice. The results suggest that, for policymakers, creating a hub of expertise might be a powerful tool for attracting MNE strategic assets.