draining development.pdf - Khazar University

128 Draining Development?available allows the Orbis data to be used for the purpose of identifyingcorporate profit shifting behavior.Orbis provides balance sheet information and data on profit and lossaccount items. Thus, it contains detailed information on pretax andafter-tax profit (both operating profits and financial, plus operatingprofits), as well as tax payments and debt variables. Moreover, informationon ownership links is included, especially links to all direct andindirect shareholders of the firm, as well as to subsidiaries within themultinational group. Finally, Orbis provides address information (postalcode and city name), which may allow researchers to determine the locationof firms (or at least the headquarters) within developing countriesand thus to identify, for instance, companies located in free economiczones or to determine the role of taxes levied at the regional level. It isimportant to stress that, as with other databases provided by privatesources, there may be issues regarding the quality of the Orbis data. Webelieve these problems can be handled by rigorous plausibility checksand data cleaning.In the following, we present and discuss descriptive statistics on somecountries in the Orbis data. Note that the Orbis version available to uscontains large firms only. Analyzing the full Orbis version, which alsoaccounts for smaller firms, is likely to enhance the firm coverage comparedwith our exercise. Moreover, we restrict the analysis to Asia andonly employ data for countries with a certain sufficient threshold of firmcoverage. The economies included in the sample are China; India; Indonesia;Malaysia; Pakistan; the Philippines; Taiwan, China; and Thailand.Our final data set is a cross section of 87,561 firms for the year 2006 (seetable 4A.2 on the website for the country distribution).Because the Orbis data provide information on ownership connectionsamong firms, they allow us to pursue the first identification strategydescribed in the previous section. We establish the definition that afirm in a developing country maintains a direct link to a foreign economyif it directly owns a subsidiary in a foreign country through possessionof at least 50 percent of the ownership shares or if it is directlyowned by a parent firm in a foreign country through a holding of at least50 percent of the ownership shares. Moreover, we adopt a second, lessrestrictivedefinition of a multinational firm that applies if any affiliatewithin the multinational group is located in a foreign country (including