Firm performance following foreign acquisitions in Norway: Evidence of profit shifting?**

Bakke, Julia Tropina

doi:10.2478/ntaxj-2023-0001

Figures & Tables

Summary statistics for the main covariates

			Inward FDI
Variable	Total	Purely domestic	pre-acq.	acq.	post-acq.
	Return on sales	0.0997	0.1002	0.0591	0.0604	0.0587
		(0.2389)	(0.2393)	(0.2078)	(0.2252)	(0.2004)
Return on total assets	0.0884	0.0885	0.0818	0.0647	0.0771
	(0.2035)	(0.2032)	(0.2161)	(0.2439)	(0.2226)
Operating profit margin (EBITDA)	0.2114	0.2126	0.1442	0.1254	0.1109
	(0.2975)	(0.2979)	(0.2675)	(0.2639)	(0.2327)
Total assets turnover	2.136	2.136	2.140	2.069	2.207
	(1.924)	(1.928)	(1.636)	(1.524)	(1.466)
Current ratio	1.744	1.745	1.669	1.603	1.789
	(2.158)	(2.162)	(1.843)	(1.614)	(1.952)
Interest coverage	27.25	27.14	30.99	33.44	42.09
	(91.11)	(90.79)	(98.72)	(107.75)	(125.14)
Sales	13,720	13,107	38,040	62,109	79,792
	(98,263)	(95,391)	(128,370)	(336,146)	(255,406)
Total assets	11,208	10,795	31,246	48,001	49,806
	(116,197)	(113,666)	(189,080)	(324,952)	(246,586)
Fixed assets	4,104	4,048	8,650	11,850	6,207
	(63,876)	(63,367)	(93,019)	(186,535)	(24,221)
Labor costs	2,262	2,146	7,603	11,635	13,650
	(12,796)	(11,934)	(27,466)	(72,487)	(39,394)
Material costs	7,977	7,642	20,294	30,328	46,557
	(74,241)	(72,707)	(86,936)	(138,373)	(195,346)
Labor cost share	0.2059	0.2057	0.2281	0.2222	0.2112
	(0.1859)	(0.1858)	(0.1924)	(0.1922)	(0.1793)
Material cost share	0.3546	0.3537	0.3899	0.4126	0.4550
	(0.3121)	(0.3122)	(0.3016)	(0.3040)	(0.2953)
Other operating costs share	0.2832	0.2833	0.2815	0.2778	0.2559
	(0.2168)	(0.2169)	(0.2209)	(0.2094)	(0.2054)
Tangibility	0.2619	0.2634	0.1940	0.1411	0.1111
	(0.3388)	(0.3395)	(0.2911)	(0.2734)	(0.2301)
Leverage	0.7791	0.7794	0.7652	0.7823	0.7381
	(0.2582)	(0.2580)	(0.2563)	(0.2798)	(0.2852)
Market share	0.0031	0.0029	0.0105	0.0133	0.0170
	(0.0261)	(0.0253)	(0.0528)	(0.0584)	(0.0689)
Loss-making	0.2460	0.2458	0.2512	0.3163	0.2606
	(0.4307)	(0.4306)	(0.4338)	(0.4653)	(0.4390)
Age	11.72	11.71	11.57	10.23	13.41
	(13.79)	(13.77)	(15.77)	(13.75)	(13.71)
Obs.	629,919	621,123	4,367	1,040	3,389

ATT matching estimates, profitability measures

	ATT
	Taxable income/Sales (1)	EBITDA/Sales (2)	Total assets (3)
Differences	Benchmark: 3 years average prior to acquisition
The year of acquisition	−0.004	−0.012	−0.006
	(−0.474)	(−1.160)	(−0.893)
1 year after acquisition	−0.015	−0.038	−0.014
	(−1.508)	(−3.387)	(−1.613)
2 years after acquisition	−0.019	−0.047	−0.018
	(−1.982)	(−3.889)	(−2.019)
3 years after acquisition	−0.022	−0.033	−0.012
	(−2.003)	(−2.706)	(−1.196)
4 years after acquisition	−0.042	−0.059	−0.019
	(−3.421)	(−4.683)	(−1.771)
Average (4 years after acquisition)	−0.030	−0.052	−0.018
	(−3.996)	(−5.490)	(−2.636)

Balancing test: Taxable income/ Total assets

Variable	Matching status	Mean (Treated)	Mean (Controls)	% bias	% reduction in bias	t-test	p-value
Taxable income/Sales	Unmatched	0.0761	0.0857	−6.7		−0.79	0.428
	Matched	0.0761	0.0780	−1.3	80.0	−0.13	0.897
Tangibility	Unmatched	0.1493	0.2862	−53.4		−5.80	0.000
	Matched	0.1493	0.1489	0.1	99.7	0.01	0.988
Market share	Unmatched	0.0225	0.0031	30.1		10.80	0.000
	Matched	0.0225	0.0129	15.0	50.4	1.22	0.223
Ln (Total Assets)	Unmatched	9.255	7.916	99.0		13..60	0.000
	Matched	9.255	9.199	4.1	95.8	0.33	0.744
Age q1	Unmatched	0.1975	0.2601	5.9		0.76	0.449
	Matched	0.1975	0.2484	8.6	−44.2	0.76	0.446
Age q2	Unmatched	0.2612	0.3058	−9.9		−1.21	0.224
	Matched	0.2612	0.2739	−2.8	71.5	−0.25	0.800
Age q3	Unmatched	0.2025	0.21145	0.3		0.04	0.968
	Matched	0.2229	0.18	−4.7	−1395	−0.41	0.681
Age q4	Unmatched	0.2484	0.2315	4.0		0.50	0.616
	Matched	0.2484	0.2548	−1.5	62.3	−0.13	0.897
Industry group 1	Unmatched	0.1975	0.1713	6.7		0.87	0.384
	Matched	0.1975	0.1656	8.2	-21.6	0.73	0.466
Industry group 2	Unmatched	0.4013	0.1529	57.6		8.64	0.000
	Matched	0.4013	0.4268	−5.9	89.7	−0.46	0.648
Industry group 3	Unmatched	0.0701	0.3259	−67.7		−6.84	0.000
	Matched	0.0701	0.0510	5.1	92.5	0.71	0.479
Industry group 4	Unmatched	0.0892	0.0660	8.7		1.17	0.242
	Matched	0.0892	0.1147	−9.5	−9.8	−0.74	0.457
Industry group 5	Unmatched	0.0892	0.1544	-20.0		−2.26	0.024
	Matched	0.0892	0.0764	3.9	80.5	0.41	0.683
Industry group 6	Unmatched	0.1529	0.1295	6.7		0.87	0.384
	Matched	0.1529	0.1656	−3.7	45.4	−0.31	0.759

ATT matching estimates: robustness tests

		ATT
	Acq.	Taxable income/Sales (1)	Taxable income/Total assets (2)	EBITDA/Sales (3)
Differences	(4 years after acquisition (average) - 3 years prior to acquisition (average))
I. Original sample	155	−0.030	−0.052	−0.018
		(−3.996)	(−5.490)	(−2.636)
II. Excluding loss-making firms	124	−0.027	−0.038	−0.016
		(−3.459)	(−4.000)	(−2.168)
III. Foreign ownership share over 90%	129	−0.038	−0.061	−0.024
		(−4.976)	(−5.554)	(−3.456)

ATT matching estimates: different matching methods

	ATT
	Taxable income/ Sales (1)	Taxable income/ Total assets (2)	EBITDA/Sales (3)
Differences	(4 years after acquisition (average) - 3 years prior to acquisition (average))
Nearest neighbor matching	−0.030	−0.052	−0.018
	(−3.996)	(−5.490)	(−2.636)
Kernel matching	−0.031	−0.050	−0.025
	(−3.65)	(−2.80)	(−2.60)
Radius matching	−0.031	−0.050	−0.023
	(−2.03)	(−3.28)	(−2.55)

Covariate balancing tests (Taxable income/Sales)

	Number of t treated (1)	Number of (2)	Probit pseudo R-squared before (3)	Probit pseudo R-squared after (4)	Median bias, before (5)	Median bias, after (6)
0 (year of acquisition)	568	389,181	0.116	0.011	16.8	2.6
1st year post acquisition	413	320,833	0.121	0.009	18.6	2.7
2nd year post acquisition	311	268,098	0.130	0.010	20.4	2.7
3rd year post acquisition	241	221,337	0.150	0.015	22.2	4.3
4th year post acquisition	169	179,851	0.162	0.029	16.6	5.6
4 years post acquisition (average)	157	167,658	0.167	0.028	18.1	3.9

ATT matching estimates, cost items

	ATT
	Material costs of Goods sold /Sales (1)	Labor costs/Sales (2)	Other operating costs /Sales (3)
Differences	Benchmark: 3 years average prior to acquisition
The year of acquisition	0.006	−0.005	0.003
	(0.963)	(−1.112)	(0.446)
1 year after acquisition	0.034	−0.014	−0.010
	(4.487)	(−2.685)	(−1.366)
2 years after acquisition	0.018	−0.005	0.000
	(2.213)	(−0.877)	(0.014)
3 years after acquisition	0.027	−0.011	−0.003
	(2.765)	(−1.901)	(−.330)
4 years after acquisition	0.029	−0.002	−0.009
	(2.710)	(−0.256)	(−0.966)
Average (4 years after acquisition)	0.020	0.000	−0.000
	(2.682)	(0.038)	(−0.020)

propensity score estimation — probit results

	Coefficient	Standard Error	P-value
Return on sales	−0.4463***	(0.0973)	0.000
Tangibility	−0.3929***	(0.0711)	0.000
Market share	0.5742**	(0.2856)	0.044
Ln(Total Assets)	0.1765***	(0.0099)	0.000
Age Q2	−0.1496***	(0.0377)	0.000
Age Q3	−0.1676***	(0.0395)	0.000
Age Q4	−0.2554***	(0.0401)	0.000
Year dummy variables	Yes
Industry dummy variables	Yes
Region dummy variables	Yes
Pseudo R-squared	0.1160
LR chi-squared	992.08
Observations	389,749
Treated	568
Non-treated	389,181

ATT matching estimates, other performance indicators

	ATT
	Sales (1)	Taxable Income (2)	Total Assets (3)	Fixed Assets (4)	Leverage Ratio (5)
Differences	Benchmark: 3 years average prior to acquisition
The year of acquisition	0.067	0.147	0.114	0.041	−0.031 (−2.917)
	(2.527)	(2.464)	(4.822)	(1.007)
1 year after acquisition	0.196	0.166	0.175	0.151	−0.005
	(6.273)	(2.559)	(6.093)	(2.585)	(−.418)
2 years after acquisition	0.236	0.289	0.198	0.031	−0.028
	(6.311)	(3.631)	(5.872)	(.422)	(−1.815)
3 years after acquisition	0.268	0.252	0.242	0.260	−0.068
	(5.981)	(2.850)	(6.221)	(3.368)	(−3.987)
4 years after acquisition	0.296	0.218	0.300	0.410	0.092
	(5.382)	(2.312)	(6.138)	(4.315)	(1.249)
Average (4 years after acquisition)	0.293	0.202	0.298	0.258	−0.040
	(8.450)	(2.377)	(8.712)	(3.090)	(−3.041)

Number of observations over time

			Inward FDI
Year	Total	Purely domestic	pre-acquisition	acquisition	post-acquisition
	1994	40,225	39,754	392	79	0
	1995	42,876	42,346	428	30	72
1996	45,722	45,163	423	32	104
1997	48,895	48,273	468	27	127
1998	51.741	51,041	513	34	153
1999	53,185	52,435	500	68	182
2000	54,790	53,988	484	88	230
2001	55,982	55,139	414	124	305
2002	56,292	55,423	343	119	407
2003	58,120	57,237	268	110	505
2004	60,168	59,265	134	172	597
2005	61,923	61,059	0	157	707
Total	629,919	621,123	4,367	1,040	3,389

ATT matching estimates, performance measures

	ATT
Change from year before acquisition to	Total asset turnover (1)	Current ratio (2)	Interest coverage (3)
Differences	Benchmark: 3 years average prior to acquisition
The year of acquisition	−0.107	−0.078	1.554
	(−2.20)	(−1.047)	(0.360)
1 year after acquisition	−0.034	0.001	2.415
	(−0.719)	(0.016)	(0.438)
2 years after acquisition	0.055	0.038	−2.584
	(1.003)	(0.344)	(−0.477)
3 years after acquisition	0.029	0.165	0.290
	(0.476)	(1.367)	(0.045)
4 years after acquisition	0.042	0.099	−9.364
	(0.619)	(0.723)	(−1.484)
Average (4 years after acquisition)	−0.031	0.074	−4.521
	(−0.632)	(0.794)	(0.949)

Firm performance following foreign acquisitions in Norway: Evidence of profit shifting?**

Figures & Tables

Summary statistics for the main covariates

ATT matching estimates, profitability measures

Balancing test: Taxable income/ Total assets

ATT matching estimates: robustness tests

ATT matching estimates: different matching methods

Covariate balancing tests (Taxable income/Sales)

ATT matching estimates, cost items

propensity score estimation — probit results

ATT matching estimates, other performance indicators

Number of observations over time

ATT matching estimates, performance measures

Paradigm

My account