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Arbitrage power and the disappearing financialized firm

Published online by Cambridge University Press:  09 November 2023

Ronen Palan  and
Richard Phillips
Ronen Palan*
Affiliation:
City, University of London UK
Richard Phillips
Affiliation:
City, University of London UK
*
Corresponding author: Ronen Palan, Department of International Politics, City, University of London, Northampton Square, London EC1V 0HB, UK. Email: [email protected].
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Abstract

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Modern corporations have increasingly been adopting a decentred, layered, and multi-jurisdictional form as a strategy of boundary manipulation known amongst tax lawyers and accountants as ‘regulatory arbitrage’. The argument we put forward in this article is that the scholarly work that treats these strategies as mere tax avoidance practices has contributed to an underestimation and misrecognition of the way contemporary multinationals operate in markets. These strategies, which we explain in terms of arbitrage power, exploit the difference between exchanges in an imaginary ‘smooth’ market of the economic textbook and a global market that is divided among legal authorities, each imposing their own rules, regulations, and taxations. Arbitrage power exploits differences between the location of market exchange and the location of the registration of property title transfers, combining this with a manipulation of formal systems for recognizing business enterprises in order to escape some or all of the rules and regulations of society. The result is a marked difference between the ‘brochure multinational’, the way multinationals are seen and presented in their glossy brochures, and the way multinationals are legally and practically organized nowadays.

Keywords

Multinational enterprisespowerjurisdictional arbitrageevolutionary economicsglobalization
Type
Article
Information
Finance and Society , Volume 8 , Issue 1 , 2022 , pp. 22 - 41
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - ND
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-No Derivatives licence (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits noncommercial re-use, distribution, and reproduction in any medium, provided the original work is unaltered and is properly cited. The written permission of Cambridge University Press must be obtained for commercial re-use or in order to create a derivative work.
Copyright
© 2022 The Author(s)

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