Master Thesis
Drivers of headquarter relocation: An
empirical examination of corporate
headquarter movements in Europe
An analysis of the influence of push and pull factors on the decision whether to
relocate corporate headquarters abroad within Europe
By
S.C. van Beek
S2943085
University of Groningen – Faculty of Economics and Business
MSc International Business and Management
June 2017
Word Count (excl. references): 10.048
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Abstract
In this research, a dataset is constructed consisting of headquarter relocations within Europe in the period of 2001-2016. The research aimed to identify push and pull factors which have an influence on a company’s decision to move its corporate headquarters to another country. Furthermore, the study also aimed to add literature and research to the scarce availability of information on this topic. The main hypothesis that was tested concerned the influence of the proportion of foreign shareholders on the decision to relocate the corporate headquarters. No significant results were found for this hypothesis. Furthermore, several moderators were added and tested in the research. The influence of the corporate tax rate, wage level, presence of related companies and employment rate on the relationship between the proportion of foreign shareholders and the probability of relocation were tested. The corporate tax rate and wage level were hypothesized to have a positively moderating effect on this relationship, the others were hypothesized to have a negatively moderating effect. None of the results show significant support for these hypotheses. Even though there were no significant results, this research adds important literature and results to the scarce amount of existing research on this topic.
Introduction
Corporate headquarters (HQ) relocation overseas is an important event with significant impact in the existence of a company. In contrast to the relocation of parts of a company, HQ relocation has an impact on the operations of business as a whole (Gregory, Lombard and Seifert, 2005). Birkinshaw et. al. (2006) already showed that HQ relocation becomes increasingly important in an international business context. Based on recent events, like the Brexit, it can be assumed that this is still the case:
‘’Britain’s biggest banks are preparing to relocate out of the UK in the first few months of 2017 amid growing fears over the impending Brexit negotiations, while smaller banks are making plans to get out before Christmas’’ (The Guardian, 2016).
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influence this decision. These are just some of many examples of the current relevance of this topic. The recent decision of Britain to leave the European Union is an example of a number of underlying economic factors that drive companies’ decision to relocate their headquarters. Based on the statement of Laamanen et. al. (2012) that firms face increasing pressure for cost minimization of their HQ, it can be assumed that relocation has happened and will happen more frequently. Furthermore, it can be assumed that there are many other push and pull factors that can drive a company to decide to relocate their headquarters to another country. This research aims to identify these factors and their influence.
Focusing on international business literature, this research can be strengthened by theoretical support. According to Laamanen et. al (2012), HQ relocation decisions can be regarded as an ultimate international business decision. A corporate HQ location is mainly based on historical roots, the decision to relocate challenges these roots and is a step in further optimizing the business activities. HQ relocation is called ‘’the third degree of internationalization’’ by Forsgren et. al. (1995). The first degree consists of relocating the R&D and sales and marketing activities abroad. The second degree takes place when stronger centers are developed from within subsidiaries, in order to be able to take on international responsibilities. Ultimately, the relocation of HQ is the third degree in increasing internationalization.
The practical relevance of this research is also significant. As already stated by Laamanen et. al. (2012) and Voget (2008), an example of this relevance is the influence of tax rates on the decision to relocate a company. This research is able to identify the influence of increasing tax rates on this decision, which clearly has a high relevance for policy makers in a certain country. Furthermore, this research can also be relevant for real estate companies, which will have a better understanding of location decisions and strategies of corporate companies.
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Literature Review
The corporate headquarters and its activities
Over time, the classic corporation transformed to a modern corporation. One of the most important stages in this development was the creation of the 'M-form' organization, which decentralized the management of individual businesses in order to create more time and space for the top management to focus on more strategic tasks. This radical change in the management of a company started back in the 1920s (Sloan, 1963), however academics and accordingly, their literature took longer to appear (Chandler, 1962; Drucker, 1955; Williamson, 1975; Fligstein, 1985). The change from the unitary structure to the M-form caused the possibility for an increase in diversity both on organizational and geographic level. Furthermore, it also created the emergence of specialized functions for executives who were responsible for the activities performed by business units and the corporate HQ (Hofer, 1975; Vancil and Lorange, 1975).
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There are different strategic styles, and there are often large differences between countries and industries (Young, Collis, and Goold, 2002; Goold et. Al., 1994, 2001; Markides, 2001). The relocation of corporate HQ is considered a strategic action and therefore incorporated in this research, the same goes for the mentioned differences between countries, which will be further investigated when performing this research. There is a large amount of existing literature on the business unit HQ, focusing on the unit’s activities as decision making, strategic planning, and strategic thinking (e.g., Mintzberg, 1994; Porter, 1980) however, little of this research focuses on the actual make-up of the HQ function (Birkinshaw, 2006). The business unit HQ is in general much smaller than the corporate HQ, meaning that it consists of a management team which represents the business unit’s activities, including a number of supporting activities, such as HR, finance and strategic planning. It can be stated that the main strategy of a company can be derived from movements and decisions made by the corporate headquarters instead of a business unit headquarters, which are therefore the main topic of attention in this research. Finally, regarding the location of HQ, the existing literature provides limited information. Forsgren et al. (1995) focused on HQ relocation decisions overseas based on power relation drivers, furthermore a number of studies focused on this topic marginally (Hedlund, 1986; Bartlett and Ghoshal, 1989). There are a number of studies that focus on headquarter relocations on a corporate level, but it is mainly focused on the costs and benefits of agglomeration, and it views the relocations within a given city or region (Alii et. al., 1991; Ghosh, Rodriguez, and Sirmans, 1995; Semple and Phipps, 1982). There is also a body of literature concerned with the motivations for listing the MNCs stock overseas (Bancel and Mittoo, 2001; Coffee, 2002; Foerster and Karolyi, 1999; Pagano, Roell, and Zechner, 2002; Saudagaran and Biddle, 1995; Salva, 2003). However, none of these studies examines the reasons for locating the corporate HQ itself in another sovereign nation (Baaij, Van den Bosch, and Volberda, 2004). The study of Laamenen et. al. (2012) focuses on relocations within Europe, however, their study’s most recent data is from 2006.
Resource-Based view
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exploitation of internal and external company-specific competencies that exist, to address changes in the business environment (Teece et al., 1997). The framework focuses on the development of managerial competencies and difficult-to-imitate mixtures of executive, functional and technological skills. It is also based on research in administration of R&D, product and process development, transfer of technology, intellectual ability, manufacturing, human resource management and organizational learning, which it integrates into the framework (Rustambekov and Mohan, 2016).
Many studies focused on defining dynamic capabilities and have been arguing in what way they can be a source of competitive advantage for a company (Barney, 1991; Constance, 1997; Eisenhardt and Martin, 2000; Blyler and Coff, 2003). It is found that dynamic capabilities represent a specific type of knowledge (Makadok, 2001; Malik and Kotabe, 2009). Further implications following from the knowledge aspect of dynamic capabilities have not been subject of investigation so far. For example, one of the most important attributes of knowledge, is geographical-localization which states that knowledge flourishes in specific locations (Jaffe et al., 1993; Zucker et al., 1998a; and Keller, 2002). Therefore, it can be assumed that the location of a corporate HQ is an important topic in the strategy of multinational corporations. The fact that headquarters have a knowledge-intensive character make them a suitable location to store a big amount of dynamic capabilities, and consequently an appropriate and relevant subject to further investigate. Traditional functions of headquarters include being a major source of knowledge and competencies (Ambos et al., 2006). Therefore, this research focuses on the decision of corporate HQs to abandon a certain location.
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relocation of corporate headquarters. Headquarter relocations are viewed as both a resource-picking and a capability-building mechanism and are therefore a relative phenomenon to further investigate in an international business context.
HQ relocation in an internationalization context
Headquarter relocation is an ultimate stage in the internationalization process as described by Forsgren, Holm and Johanson (1995). Benito, Lunnan and Tomassen (2011) describe the internationalization of HQ activities as: “locating in other countries core management functions that before had typically been performed at headquarters at home or even relocating headquarters themselves abroad”.
According to Benito, Lunnan and Tomassen (2011), the relocation of corporate HQs is a rare phenomenon when compared to the relocation of divisional HQs. However, there is sufficient evidence of the relocation of corporations out of metropolitan areas such as New York and London. This trend was already pointed out in the World Investment Report of UNCTAD in 2003, which states that a general shift can be expected, of companies who perform their activities across borders, towards restructuring and eventually relocation of corporate HQs. In their report of 2013 they confirm this trend by stating that many transnational corporations “re-profiled” their investment overseas, among other through restructuring, divestment and relocations.
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relocation as the legal transfer of the firm’s corporate HQ or regional HQ from one country to another. It is not required that top management moves, but existing research shows that this mainly is the case as well.
HQ relocations in international business
There is a decrease in location dependency for corporations, even though they are embedded in their institutional environments (Murtha & Lenway, 1994; Peng & Pleggenkuhle-Miles, 2009). Location decision are more and more driven by efficiency due to faster and cheaper transfer of information and products (Duranton & Puga, 2005; Fujita & Thisse, 2006; Laamanen et. al., 2011). The most well-known example of this movement is the relocation of manufacturing activities to developing countries, where labor costs are significantly lower. Head & Mayer (2004) also state that proximity to customers and resources have an influence on the decision to relocate corporate headquarters.
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firms and on whether the firm is partially or fully relocated. Hypotheses development
Proportion of sales generated abroad
Ensuring that the subsidiaries act in a way that connects with the parent company’s global strategic agenda are well-known and central challenges research related to global firms since the 1980s (Johanson, Vahlne and Schweitzer, 2012). From that moment, global firms in a variety of industries started facing the shifts in their business environment, which was characterized by the tension that required them to pursue the goal of integrating their activities globally. On one hand, they had to do this in order to take advantage of economies of scale and scope, but on the other hand there was a need for local responsiveness in all of their host country markets. In the beginning, as mentioned in numerous theory based research (e.g. Buckley and Casson, 1976; Dunning, 1981; Gates and Egelhoff, 1986; Hymer, 1960; Welge, 1981) global firms were seen as hierarchical, centralized companies where the parent organization was the main source of business advantages and strategic thinking. Later, researchers started to identify a number of permanent solutions that were based on a variety of strategies related to the dilemma of global integration and local responsiveness.
The global firm, as mentioned by Porter (1986) was suggested as a firm that was able to coordinate these dispersed activities and was at the same time able to take advantage of economies of scale and location advantages. Bartlett and Ghoshal (1989) mentioned the transnational firm, which was able to coordinate the innovation processes in a dispersed organization attempting to fully gain the MNC potential economies of scope and the benefits that result from learning in a worldwide environment. Furthermore, White and Poynter (1990) stated that a horizontal firm is able to achieve advantage, both global and local, by connecting the subsidiaries through lateral decision processes. Hedlund and Rolander (1990) replaced these examples of firms based on internal hierarchy with a more balanced mutual dependence between subsidiaries that pursue distinct strategic roles like marketing, production and/or research.
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resources, the belief that subsidiaries were just organizations that were obeying tasks and order from the HQ was pressured by scholars. The subsidiaries were now seen as able to develop their own activities in the local environment in a proactive manner, and hereby adding value to the overall business of the global firm (e.g. Birkinshaw, 1997; Birkinshaw and Hood, 1998; Delany, 2000; Johanson et. al., 2012). Key determinants of the increasingly important role of subsidiaries have been identified through a number of researches. Summarizing these existing literature, it can be said that the industry sector (e.g. Jarillo and Martinez, 1990), the local environment where the business takes place (e.g. Ghoshal and Nohria, 1989), the relationship between subsidiaries within an MNC network (e.g. Gupta and Govindarajan, 1991), and the degree to which subsidiaries pursue entrepreneurial goals (e.g. Birkinshaw, 1995) are the main determinants for the role of subsidiaries within the global organization. With this increasingly important role of subsidiaries, relocation becomes a relevant topic as well since subsidiary locations can become more important than the headquarters current location. Especially when linking the theory of Johanson and Vahlne (2009) of the so called ‘outsidership’ to this trend.
We speak of the liability of outsidership (Johanson and Vahlne, 2009) of a HQ when problems encountered by corporate HQs—for example judging initiatives raised by subsidiaries—are not mainly caused by a lack of knowledge, but rather by a lack of understanding of the local environment and network in which the subsidiary is located and from which these initiatives originate. It becomes hard for the HQ to judge these initiatives when they are not connected to the environments of the subsidiaries. This causes the HQ to become more and more detached from its subsidiaries, which results in the fact that subsidiaries do not propose any initiatives to the HQ anymore, but pursues them on their own and starts cooperating with local partners. With this development, a negative spiral is started, where the HQ becomes detached even more and becomes an outsider, resulting in the increase of the liability of outsidership.
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that change in ways that HQs are not able to respond to due to a lack of information, due to the uncertain and ambiguous character of these environments. This causes managers to perform in a situation of goal ambiguity (Vahlne et. al., 2012). In their model for overcoming the liability of outsidership, Vahlne et al. (2012) propose two main areas of action that can be applied by the HQ: (1) increase the knowledge about subsidiaries and their local networks and (2) increase trust and commitment to those subsidiaries and other external parties of importance. It is stated that these actions have to be continuous instead of one-time actions. Furthermore, it is of high importance that this commitment takes place at both sides of the relationships in order for the process to work, in this way the probability of unexpected events reduces.
Increasing the knowledge about subsidiaries and their local networks can be achieved by interaction with key people at the subsidiary of interest. The interaction takes place at the cost of the interaction of these key people with local parties in their own network (Forsgren et al., 2000; Holmström, 2010; Kostova and Roth, 2002). The increase of trust and commitment will have a positive influence on knowledge sharing as well as showing the will to build the best version of the company (Vahlne et. al., 2011). It can be achieved by the investment of HQs in specific subsidiary projects, from the subsidiary side it can be achieved by, among others, increasing knowledge transfer and implementation of the general strategy.
However, knowledge transfer and development remains difficult, which may cause the HQs to commit resources in another way, like investing in their own activities that are related to the local network of their most important subsidiaries. This is where relocation becomes an option and the HQ can decide to move to the location of their most important subsidiary (Vahlne et. al., 2012). It can be assumed that a particular subsidiary has become the main driver of the company’s sales, which causes the HQ to become more and more reliant on that particular location. In order to take full advantage of the potential that this location provides, the HQ can relocate to this location. Like Vahlne, Schweizer and Johanson (2012) state: “we would like to underscore once again that
HQ itself must be active in important markets, that is, at the location of its most important subsidiaries.”
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Proportion of foreign shareholders
When the number of shares held outside the MNC’s home country increases, it becomes increasingly important to relocate relevant parts close to international capital markets and shareholders (Birkinshaw et al., 2006). The members of the Executive Management Team and the core staff functions of the headquarter are the most likely parts that are influenced by the degree to which the shareholders of an MNC are internationalized (Baaij et. al., 2015). General motivations to pursue foreign direct investment (Dunning, 1993, 1998; Nachum and Zaheer, 2005; Zaheer and Manrakhan, 2001), enable us to derive a number of specific reasons to move the HQ overseas based on motivations caused by the increase in foreign shareholders.
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Some real-life examples provide further proof for these statements. The example of Nokia represents proof of the influence of the degree to which shareholders are internationalized. Nokia relocated part of its headquarters in Espoo, Finland, to New York in 2003, where the company is listed on the stock exchange. The relocation was explained by Nokia’s head of Corporate Communication: “The customers of the CFO are in New York. It is the world’s biggest financial centre and also Nokia’s biggest country for sales and in terms of its owners,” (Financial Times, 2003). Celanese, a chemical company, provides us with another example (Celanese, 2011; Desai, 2009). Celanese was originally a German company when it was reincorporated in the US to take advantage of differences in stock market valuation between German and US chemical companies. In 2004, the company was taken private by Blackstone. In 2005, the company was incorporated by Blackstone, the corporate headquarters was moved to Dallas and Celanese was relisted on the New York Stock Exchange.
Hypothesis 2: A high proportion of foreign shareholders increases the probability of HQ relocation
Push factors
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Desai and Hines (2002) have examined the influence of taxation in 26 corporate inversions of U.S. multinationals in the period between 1982–2002. They provide proof of the fact that foreign subsidiaries of inverting firms generally face lower tax rates, which supports their hypothesis that inverting firms aim to avoid residual taxation in the U.S. Furthermore, they find that larger firms and highly leveraged firms are more likely to relocate abroad. An explanation for this finding can be the fact that U.S. firms have to partly allocate costs that are linked to their domestic location (e.g. interest) against income generated in a foreign country. Hence, these costs become non-deductible. This deductibility of interest expenses as a driver for relocating corporate headquarters is further emphasized by Seida and Wempe (2004) in their examination of 12 corporate inversions and their financial consequences. Their results show that firms' effective tax rates are significantly reduced as a result of inversion.
Another related question is examined in the research by Huizinga and Voget (2009): cross-border mergers create new frictions in the form of withholding taxes and residual taxation of dividend flows between the two merging entities. They show that international M&As are likely to choose a structure that reduced the additional burden to a minimum. However, they do not focus on the question if the current corporate structure of a certain multinational reduces or increases the probability to engage in cross-border M&As (and hereby relocation). Based on these existing researches, it can be stated that taxation obviously has a big influence on internationally operating firms. Since the location of the HQ has a major influence on the way of taxation for the company in general, it can be assumed that tax rates have an influence on the relocation of corporate HQ. The relocation of IKEA from Sweden to The Netherlands (Business Review, 2016) is an example of a tax driven relocation. Furthermore, tax levels for employees can have an influence as well, since employees from a corporate HQ are generally earning a higher salary, it can be assumed that a high-income tax will drive away these companies. On the other hand, high tax levels can be an indication of a well-developed society and it can therefore be assumed that this will cause companies to relocate to these high tax areas. However, the market examples like IKEA, and the trend for tax optimization in general shows the influence of taxation levels on the relocation decisions of firms.
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Hypothesis 3b: A high corporate tax rate in the home country positively moderates the effect of the proportion of foreign shareholders on the probability of HQ relocation
In line with the earlier mentioned factors, it can be considered that the employment rate has an influence as well. Both a positive and a negative relationship can be hypothesized. On the one hand, a high employment rate indicates a successful economy where firms want to participate in. However, on the other hand it can be an indication of a crowded market place, which can cause scarcity of skilled people, and therefore a potential risk for the company.
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Hypothesis 4b: A high employment rate in the home country positively moderates the effect of the proportion of foreign shareholders on the probability of HQ relocation
Pull factors – Home country
Besides factors that push companies away from a country and pull them towards a certain country, the existence of pull factors from the home country can also be assumed. As mentioned by Lovely et. al. (2005), clustering is an important topic to consider when researching HQ locations or relocations. Already in 1920, Marshall (1920) suggested that companies cluster in a specific area, partially due to the external economies of scale that follow from knowledge spillovers and labor market pooling. We speak of knowledge spillovers when firms learn from nearby firms and their success depends on the acquisition of information. When firms are better able to hire skilled people due to the fact that they are located in an area with companies that seek similar people, we call this labor market pooling. Lastly, Alonso (1972) stated that many companies and industries cluster in a specific area because of the proximity to a source of a key input. Areas with information related facilities, like universities, offer so called “natural advantages” (e.g. Ellison and Glaeser, 1997), which also results from the need for information acquiring.
However, even though it is generally assumed that agglomeration of related companies is fueled by the need to acquire information, only a number of studies provide empirical evidence on this topic. Among these studies, probably the strongest study is the one from Jaffe et al. (1993), which shows that patent citations decrease when the company’s distance from the original patent increases. Furthermore, Audretsch and Feldman (1996) measure geographic concentration and show that innovative activity is more agglomerated than production, they also show that industries that focus on research and development are more likely to be concentrated in a certain area than others.
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increases. The fact that agglomeration causes an increase in factor productivity is demonstrated by Henderson (1986). The well-known example of clustering in Silicon Valley is showed by Saxenian (1994). A model by Krugman (1991) shows that agglomeration is the result of manufacturing firms moving to a place of larger demand, aiming to achieve economies of scale and reduce transportation costs, while on the other hand the location of demand is based on the location of the manufacturers.
Multiple studies focusing on agglomeration patterns based their research on this economic reasoning. Smith and Florida (1994) and Head et. al. (1995) discovered that Japanese firms tend to locate themselves in the proximity of other Japanese firms. They indicated that technological spillovers, the presence of a specialized workforce, and other factors were the main reason to agglomerate. Furthermore, Chung and Song (2004) indicated that Japanese firms in the electronic business in the United States were inclined to locate with other Japanese firms, when their experience was low. Chung and Alcacer (2002) showed that firms which are active in research-intensive industries are intended to locate in regions where R&D intensity is high. Even though economists generally link agglomeration to seeking economic gains, organizational theorists discussed that non-economic reasons can also be the driver of agglomeration. For example, when firms seek legitimacy in order to pursue growth strategies, agglomeration can occur as well (DiMaggio and Powell, 1983; Suchman, 1995). It is possible that a firm locates in a specific place because other firms located there as well, this behavior has been studies by a number of researchers (e.g. Fligstein, 1985; Davis, 1991; Haunschild, 1993).
Furthermore, entering a new country can cause risk and uncertainty and thereby causes an increase in mimetic behavior (Levitt and March, 1988). It is empirically proved that risk and uncertainty have an influence on foreign expansions. Guillen (2002) discovered that firms showed mimetic behavior when they were in the early stages of internationalization. It is showed by Henisz and Delios (2001) that Japense firms with a lack of international experience focused on decisions made by other firms in the past when making their own decisions. Lastly, Knickerbocker (1973) indicated as well, that companies in oligopolistic industries are likely to imitate other companies when entering markets.
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Hypothesis 5b: The presence of related companies in the home country negatively moderates the effect of the proportion of foreign shareholders on the probability of HQ relocation
We continue by assuming that a corporate HQ needs skilled and high-educated staff, from this point of view it can be assumed that a high wage level in the home country indicates the presence of this staff and therefore has a positive relation to the HQ, in other words, it has a negative influence on the decision to relocate. In recent work on the new economic geography, wage levels are also discussed (e.g. Brakman et. al., 2009). The effect of wage levels on factory relocations is well established in the existing literature, however, apart from the research of Strauss-Kahn and Vives (2009) and Laamanen et. al. (2012), the existing research on the effect of wage level on corporate headquarters relocation is scarce.
Headquarters generally require educated and skilled workers, that are not widely available, it can be assumed that they locate in specific areas to be able to satisfy this need. A high wage level could be an indication of the presence of these qualified employees (Laamanen et. al., 2012). From this reasoning, a negative influence on the decision to relocate can be expected when the wage level is high. Existing research of Strauss-Kahn and Vives (2009) confirms this way of thinking. Furthermore, the recent example of General Electric moving its HQ from Fairfield to Boston was driven by the fact that they wanted to be near a well-educated workforce (Wagner, 2016). Therefore, it can be assumed that the wage level matters.
Hypothesis 6a: A high wage level in the home country negatively moderates the effect of the proportion of sales generated abroad on the probability of HQ relocation
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Figure 1 Conceptual Model
Methodology
Data and sample
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The aim of this research is to collect data on headquarter relocations in 19 European countries (EU-19). Furthermore, relocations were included if the current country or the target country involved a member country of the European Union.
The sample consists of 30 corporate headquarter relocations in 10 European countries, in the period of 2001- 2016, the remaining 9 countries did not experience any relocations in this period. Relocations are only included if they are headquarters relocations, any other part of a company, like production or customer service departments are excluded from the sample. Furthermore, this research adopts the sampling of Laamanen et. al. (2012), meaning that the focus is on relocations where the headquarter relocated from one country to another, while maintaining “a degree of continuity of identity”. This means that they are only included if they continued their business and did not close the headquarters and reopened a company in another country.
The dataset of corporate headquarter relocations is developed by the collection of data through news databases Lexis/Nexis and Reuters. Laamanen et. al. (2012) pointed out the importance of the occurrence of so called false negatives in the development of the sample. This would occur if any relocations are not included in the sample, but did took place in the time period of interest. To prevent this, in addition to the mentioned sources, Google searches and business press are added. By doing this, it can be assumed that the sample is a complete set of relocations, which are important enough to be mentioned in the sources indicated.
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Table 1 Descriptive Statistics
Variables and measurement
Variable Description
Independent Variables Proportion of Sales
Generated Abroad The proportion of the company's turnover that is not obtained in the home country. The amount is obtained through the
company's export amount mentioned in the Orbis database. Proportion of
Foreign Shareholders
The proportion of foreign shareholders is the number of shareholders that does not originate from the company's home country. The amount is obtained through the shareholders database within the Orbis database.
Dependent Variable
Headquarter relocation Headquarter relocation is measured as a binary variable. Where the variable has the value 1 if a relocation took place, the control group that did not relocate has the value 0.
Moderators
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Employment Rate The employment rate is measured as the amount of people working in the country of the corresponding relocation, that is the home country from where the company relocates. The data is obtained through the OECD database.
Presence of Related Companies
The presence of related companies is measured as the amount of companies that are present in the corresponding country of the relocation, in the year prior to this relocation. The data is obtained through Orbis and the NACE codes are used to indicate the industry where the corresponding company is active.
Wage Level The wage level is measured as the average wage in the corresponding country prior to the year of the relocation. The data is obtained through the OECD database.
Control Variables
Operating Revenue The operating revenue is measured through the Orbis database, the value is matched with the year of relocation. Number of Employees The number of employees is measured through the Orbis
database, the value is matched with the year of relocation.
Research Methods
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A logistic regression analysis predicts the probability that a certain event takes place; consequently, the results indicate to what extent the independent variables predict the dependent variable. The interpretation of a logistic regression model therefore differs from linear regression in the way, based on Pampel (2000), that the coefficient of the independent variables (i.e., the B-value) has to be interpreted in a way that a positive value favors what is coded as 1 in the binary dependent variable (a relocation); a negative value would then favor the second option (coded as 0, which is not relocating). Furthermore, the interaction effects have to be interpreted in a way that when the B- value is positive and significant, that indicates that an increase in the moderating (independent) variable strengthens the effect of the independent variable more on the first option (relocation, coded as 1) of the dependent variable, than on the second option (no relocation, coded as 0). The results of the binary logistic regression are presented in Table 4 and are interpreted in the results section.
Results
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Pearson has to be used throughout the research, since this test is commonly used to analyse samples that do not have a normal distribution.
Table 2 Test of Normality
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Table 3 Correlation Matrix
The variables in the table display the amount of decrease or increase in the dependent variable when the independent variable increases by 1 unit when everything else is held constant. However, when interpreting the results, it should be taken into account that variables which are not significant, in fact have no significantly different coefficients from 0. The coefficients are log-odds units and are therefore difficult to interpret. To solve this problem SPSS converted them into odds ratio’s. These odds tell that every increase of the independent variable multiplies the odds of relocating the corporate headquarter with a certain percentage. For example, if the result would have been significant: an increase of the employment rate with 1 unit (%) would decrease of the influence of this variable on the relationship of the number of foreign shareholders on the probability of relocation. In other words, we expect a decrease of this influence on the log-odds of a headquarter relocation with 0,335, holding all other independent variables constant. Another example would have been, when the value was significant, that the results show that an increase of the proportion of foreign shareholders by 1 unit (person), would cause a decrease of the log-odds of relocation of 0,144, holding all other independent variables, if there were any, constant. The B-values are presented in the regression results in Table 4.
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moderators, interaction effects of the independent variables were added, new variables were computed by multiplying the Z-scores of the relevant variables, afterwards the new variables were added to the analysis and created model 3-6. In the last step, the complete model was tested and is presented in model 7; however, due to the fact that the purpose of this study is to test the hypotheses separately, the full model will not be used as a basis for further analysis.
Table 4 Regression Results
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that was tested, formulated as: A high proportion of foreign shareholders increases the
probability of HQ relocation, which was not supported. This finding contradicts traditional
theory which views a high proportion of foreign shareholders as a reason to relocate closer towards these shareholders in order to reach higher efficiencies in, among others, communication. Therefore, it could have been expected that it would affect the decision to relocate in the way that was hypothesized.
Hypotheses 2b, 3b, 4b and 5b concerned the moderating effect of certain push and pull factors on the effect that the proportion of foreign shareholders has on the decision to relocate a corporate headquarters. No support was found for any of these hypotheses. The direction of the results of hypothesis 2b and 3b however, matches the way they were hypothesized. The hypotheses stated that an increase in the taxation level and an increase in the employment rate in the home country would moderate the effect that the proportion of foreign shareholders has on the probability that company relocates their corporate headquarters. The negative coefficients show that the variables favor the outcome coded as 0, which is not relocating the corporate headquarters. Therefore, the results show this relationship in the same way that was hypothesized, however the results are not significant. Furthermore, the -2 log likelihood cannot be compared, due to the fact that this depends on the degrees of freedom (Sandberg, 2014). The R-square is less applicable when the fit of a logistic regression model is assessed (Hosmer & Lemeshow, 2000). The correct classification row shows the percentage of cases that was correctly classified by the model, which shows high values in this case.
Conclusion
Discussion and conclusion
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Even though the hypothesis regarding the taxation level was nog significantly supported, based on these movements there can still be assumed that taxation does play an important role in relocating the corporate headquarters. Since Switzerland an Ireland are known for their friendly tax regime, this assumption can be made. Exactly these countries were already indicated as the two most popular countries to relocate to by Laamanen et. al. (2012), so it can be concluded that this trend is still existing and continues to exist. The reason for the fact that no significant results are found can be the fact that this study focuses on a home country perspective, while it can be possible that companies relocate based on changes in the host country factors. For example, an increase in the corporate tax rate shows no significant results in this study, but it might be the case that a decrease in the corporate tax rate in the target country caused the company to relocate rather than a change in the home country. This reasoning can be applied to all the factors used in this study. Furthermore, it can be possible that companies take longer to react to changes in the factors analyzed, in this study a one year lag is applied, which is in line with existing research (e.g. Laamanen et. al., 2012), but it could be possible that companies need at least three years to react to changes.
Implications
Again, the fact that no results were found to be significant it is harder to say that the results have specific implications. However, the limited available research on this topic is now strengthened with another way to investigate this topic. The same goes for the conclusion that Switzerland an Ireland are still the most important two countries to move to, which might allow us to say that corporate tax rate does play an important role, even though this is not confirmed by the results. Competitiveness among countries still exists and the fact that corporate tax plays a role can have implications at the policy makers level in particular countries.
Limitations and future research
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home country perspective. As mentioned, it can be the case that companies rather respond to changes in a host country than changes in their home country, which causes this study to not be able to capture these effects. Furthermore, the collection of relocation data is a hard execution, due to the fact that we have to rely on a combination of news articles and internet searches, it is hard to create a large sample. This negative effect is strengthened by the fact that headquarter relocations are a big decision for a company and therefore do not take place that much. In addition to this, the timing of the research might nog be as optimal as thought, since the wave of headquarter relocation already took place years ago, and relocation in the current time mainly consist of the relocation of parts of a company like the manufacturing or supporting services. In the beginning of the research, the Brexit was mentioned as an event which could cause companies to start moving, however, it might be too soon to incorporate these movements in this research. Since a lot of articles and newspapers mentioned the possible relocation of headquarters away from the United Kingdom, none of these movements already took place, so it might be a good possibility that within a year from now, these companies will move and more data will be available.
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