Non-arm's-length transactions, offshore financial centres, transfer pricing agreements and corporate cash holdings: Evidence from U.S. multinational corporations

Fatmah Saeed Alghamdi, Baban Eulaiwi, Satam Salih Hussein, Lien Duong and Grantley Taylor

International Review of Financial Analysis, 2024, vol. 96, issue PA

Abstract: This paper examines the association between non-arm's-length transactions, the existence of offshore financial centres, the existence of a transfer pricing agreement and corporate cash holdings for a large sample of U.S. multinational corporations over the 2006–2020 period. This study provides evidence that the existence of non-arm's-length transactions and of offshore financial centres increased the level of corporate cash holdings. In contrast, the existence of a transfer pricing agreement reduces the level of firm cash holdings. Overall, these results suggest that development of transfer pricing agreements with taxing authorities reduces multinational corporations' incentives and capacity to shift profits from higher- to lower-tax countries. These results remain robust to alternative specifications of cash holdings and endogeneity tests.

Keywords: Non-arm's length transaction; Offshore financial centres; Transfer pricing agreement; Corporate cash holdings; U.S. multinational corporations (search for similar items in EconPapers)
JEL-codes: G34 H25 H26 M41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pa:s1057521924005210

DOI: 10.1016/j.irfa.2024.103589

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