U.S. multinationals and cash holdings

Tiantian Gu

Journal of Financial Economics, 2017, vol. 125, issue 2, 344-368

Abstract: U.S. multinational firms hold significantly more cash than domestic firms. I study this cash differential using a dynamic model featuring corporate physical and intangible investment, cross-border decisions, and financial policies. I find that the cash differential diminishes by 42% if repatriation costs are set to zero. Hence, costly repatriation induces cash accumulation offshore. Further, firms that invest overseas have different ex ante cash policies from firms that do not. I examine this self-selection effect by eliminating heterogeneous intangibility across multinational and domestic firms, which reduces the cash differential by 28%. I also examine the likelihood of corporate inversion under federal regulations. The estimated annual tax loss to the U.S. Treasury from inversions is reduced from $2.2 billion to $1.3 billion if the requirements for foreign ownership are tightened from 20% to 50%.

Keywords: Cash holdings; Multinationals; Intangibles; Structural estimation (search for similar items in EconPapers)
JEL-codes: C61 E22 F23 G32 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:125:y:2017:i:2:p:344-368

DOI: 10.1016/j.jfineco.2017.05.007

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