Understanding the Rise in Corporate Cash: Precautionary Savings or Foreign Taxes

Michael W. Faulkender, Kristine Hankins and Mitchell Petersen

No 23799, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What has driven the dramatic rise in U.S. corporate cash? Using non-public data, we show that the run-up is not uniform across firms but is concentrated in the foreign subsidiaries of multinational firms. Standard precautionary motives explain only domestic cash holdings, not these burgeoning foreign cash balances. Falling foreign tax rates, coupled with relaxed restrictions on income shifting, are the root of the changing foreign cash patterns. Firms with intellectual property have the greatest ability to shift income to low tax jurisdictions, and their foreign subsidiaries are where we observe the largest accumulations of cash.

JEL-codes: G31 G32 G35 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-cfn
Note: CF
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Citations: View citations in EconPapers (2)

Published as Michael W Faulkender & Kristine W Hankins & Mitchell A Petersen, 2019. "Understanding the Rise in Corporate Cash: Precautionary Savings or Foreign Taxes," The Review of Financial Studies, vol 32(9), pages 3299-3334.

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