Exploring the Challenges for International Business Scholars of Accurately Measuring MNE Activity: A Focus on Capital in Transit and Corporate Inversions

Abstract

The objective of this thesis is to critically evaluate the methodologies employed in measuring Multinational Enterprises’ (MNEs) activities, with a specific focus on the role of Capital in Transit (CIT) related Foreign Direct Investment (FDI) and Corporate Inversions. Traditional research methodologies in International Business (IB) often rely on aggregated national FDI data, which inadequately captures the complexity of MNE operations and leads to a skewed understanding of global investment flows. This study leverages advanced empirical methodologies and comprehensive datasets, such as the OECD/IMF Ultimate Investing Country (UIC) data and firm-level data from the Orbis database, to provide a nuanced analysis of CIT and its broader impact on understanding MNE strategies. The results show that CIT and corporate inversions are not random. Certain markets and types of MNEs are more likely to engage in these practices. This thesis develops methods to systematically identify and analyse corporate inversions, revealing that inverted MNEs significantly differ from non-inverted ones in size and characteristics. Additionally, CIT is prevalent among MNEs globally, often linked to tax optimisation strategies, with approximately 40-45% of global FDI stock hosted in tax havens or offshore financial centres (THOFCs).

The findings emphasize the need for refined data analysis techniques to distinguish between genuine value-adding subsidiaries and those primarily involved in CIT. This research underscores the importance of examining CIT to fully understand MNE investment approaches and highlights the complexities introduced by GUO and corporate inversions, which obscure the true origins and ownership structures of MNEs. The contributions of this thesis are threefold: First, it introduces refined empirical techniques and datasets to enhance the accuracy of global investment flow measurements. Second, it offers new insights into corporate inversions, highlighting their prevalence and characteristics. Third, it expands on institutional arbitrage theory by demonstrating how MNEs exploit specific jurisdictions for CIT, revealing the strategic behaviours underlying these choices. This thesis calls for a methodological shift in IB research to better understand and measure MNE activities. By employing advanced datasets and empirical methodologies, it provides new insights into the strategic behaviours of MNEs, challenging existing paradigms and enhancing the accuracy of global investment flow measurements. This research supports and expands on institutional arbitrage theory, with significant implications for both academic inquiry and policy formulation, aiming to enrich the international business literature with a more nuanced and accurate view of MNE strategies and their global impact.