Do US pharmaceutical companies strategically shift income to international affiliates?

Abstract

Purpose

The purpose of this study is to empirically identify incentives that drive resource shifting by US pharmaceutical firms to comparatively low-tax jurisdictions.

Design/methodology/approach

Using a panel of publicly listed companies, we investigate whether resource shifting is facilitated by two underlying factors. First, we examine whether pharmaceutical manufacturers whose intangible assets are disproportionately held as intellectual property are more or less likely to shift resources to jurisdictions outside of the USA. Second, we empirically determine whether manufacturers that derive most of their revenues from producing a specific type of product are more or less likely to shift income-producing resources to their international affiliates.

Findings

The empirical results suggest that pharmaceutical factors do practice strategic resource shifting. Moreover, pharmaceutical manufacturers which produce biologic medications are significantly less likely than other manufacturers to practice resource shifting. We find no evidence to suggest that firms whose intangible assets are more composed of intellectual property are any more or less likely to practice resource shifting.

Originality/value

To date, a plethora of studies exist which examine resource shifting in a large, general population of multinational corporations. However, there are relatively few studies that examine international resource shifting in the pharmaceutical industry.

Citation

Brajcich, A.M., Friesner, D.L. and Schibik, T.J. (2016), "Do US pharmaceutical companies strategically shift income to international affiliates?", Multinational Business Review, Vol. 24 No. 1, pp. 8-24. https://doi.org/10.1108/MBR-06-2015-0025