Why Do Some Companies Leave? Evidence on the Factors that Drive Inversions

Corporate inversions have gone through periods of intense scrutiny over the last several years with politicians and much of the media calling out these companies for being greedy and unpatriotic, while the CEOs defend their actions as being necessary to stay competitive in a global economy where US corporations face the highest statutory tax rate in the developed world. Despite all this attention, there is very little evidence in the academic literature regarding the factors that influence a company’s decision to invert. In this paper we gather a unique sample of 80 inversion announcements to examine this issue. We find no evidence that the firms that choose to invert have abnormally high effective tax rates, instead we find evidence of “tax aggressive” behavior even before these companies invert. We do find evidence that inversions are more likely in highly competitive industries. We also find evidence for a number of board and CEO characteristics that seem to affect the probability that a firm will invert.