Bruno Merlevede and Angelos Theodorakopoulos

This paper extends a production function estimator to test whether intangible transfers within firm boundaries lead to overall efficiency gains. Using a panel of European majority owned parent-affiliate relationships, we present novel evidence that parent firms strongly benefit from such transfers alongside productivity enhancements for affiliates. In relative terms, affiliates’ long-run efficiency improvements are twice those of the parent. Such gains appear to be induced by synergies for the affiliate but not for the parent, supporting theories on the existence of common ownership. A falsification exercise suggests that only 2/3 of these gains are actually internalised within firm boundaries.