Stairway to (Secrecy) Heaven : Market Attitudes towards Secrecy Shopping

We study asset price reactions to news on firms' decisions to acquire affiliates located in known secrecy havens. Our sample consists of data on the S&P 500 companies in the period 2007 to 2014. We find that acquisitions of secrecy havens are associated with a negative market reaction, particularly for firms with an existing network of secrecy haven affiliates. The market reaction to acquisitions of secrecy havens is particularly negative during the financial crisis years, since additional secrecy was likely undesirable during times of economic distress. The negative reaction is particularly strong in the retail sector, where reputational concerns should matter most. Investors react less negatively to secrecy haven acquisitions if the parent firm is well-governed and if the secrecy haven is located in a country with higher standard of living. Investors also react less negatively to acquisitions of secrecy havens with a low corporate tax rate, which indicates that they consider the potential future tax savings as positive news. Investors react positively to enforcement of tax information exchange agreements, which increase the transparency of the corporate structure to domestic authorities and investors without impacting the tax bill. The findings suggest that investors are concerned about firms' secrecy; however, potential future tax planning opportunities mitigate these concerns