Whilst tax haven use by multinational enterprises (MNEs) is often associated with economic and societal harm, studies have theorized a limited relationship between tax haven use and corporate reputation. This is surprising, given the wealth of evidence which illustrates how corporate reputations are frequently damaged following socially and economically harmful MNE activity. To advance our understanding, this study focuses on the underexplored heterogeneity associated with tax havens, specifically - their location characteristics. Drawing on attribution theory and the country reputation perspective, we theorize and explain how MNE engagement with tax havens and countries characterized by corruption, shape stakeholder perceptions, thereby heightening reputation risks. Our longitudinal analysis, involving 1,961 tax haven subsidiaries of 326 MNEs, supports our theorizing. This paper advances theory regarding the informal regulation of tax haven use and the dark side of IB.

It is often held that foreign direct investment (FDI) flows into tax havens, such as the Cayman Islands, substitutes for conventional FDI that has real economic consequences. In this paper, we suggest the opposite – FDI into tax havens mediates real FDI. We show theoretically, using a real options model, and with a simulation, that business risk lowers FDI and that the ownership of non-location bound intangible assets increases FDI as one would expect. However, both channels are mediated by the ownership of a tax haven subsidiary when the firm is considering its FDI decision, such that: (1) the ownership of a tax haven subsidiary mitigates business risk to the firm; and (2) the ownership of a tax haven subsidiary enhances the ability to deploy non-location bound intangible assets. Our theoretical findings are then tested using a large firm level dataset that includes information at the FDI project level. Our results are consistent with the real options model’s predicted parameters and the complementarity between conventional FDI and FDI into tax havens.

Tax haven use is prevalent among multinational enterprises (MNEs) across both developed and emerging market firms. It provides firms with the possibility of both greater financial gains and performance-related reputational gain as well as reputational damage due to engagement with socially irresponsible practices. In this study, we investigate the relationship between founder CEOs and family firms’ use of tax haven from mixed-gamble perspective of family firms from emerging market. Using 189 large Indian public-listed family firms, we found that family firms headed by founder CEOs refrain from using tax havens in their international strategy. According to the findings, founder CEOs weigh the positive reputation gain from avoiding tax haven use to be higher than financial gains associated with use of tax havens. Moreover, we examine two contingencies that allow us to explore heterogeneity among family firms’ use of tax havens: performance below aspiration and female board representation. This study also provides evidence that when family firms' performance is below their aspiration, founder CEOs are willing to re-evaluate options for tax haven use. On the other hand, higher female board representation reinforces founder CEOs stance on use of tax havens.