Profit Sharing and the International Activity of Firms

This article studies the effect of the international activity of firms on the use of profit sharing systems in Germany. Several arguments are conceivable for the fact that profit sharing is particularly attractive for foreign owned establishments. One of these arguments is that these establishments are especially confronted with moral hazard problems. In order to test our hypotheses we estimate cross-section and panel econometric models that explicitly account for observed and unobserved heterogeneity between establishments. In line with the proposed arguments we find significantly positive effects of foreign ownership and export activities on the use of profit sharing systems.