International income-shifting regulations: Empirical evidence from Australia and Canada

This study examines market reactions to two different approaches to reduce income shifting in an international setting. The two methods are described and event studies are performed using stock market data from Canada and Australia. Samples of companies from both countries are partitioned into firms predicted to be affected versus unaffected by each country's event. Australia's regulation taxes profits arising in low-tax subsidiaries at Australian rates. Canada's method defines acceptable transfer prices (arm's-length transactions) and describes enforcement and audit policies. We find evidence of stock market reactions on some of the event dates for Australian and Canadian firms affected by these two approaches.