The effect of repatriation tax costs on U.S. multinational investment

Michelle Hanlon, Rebecca Lester and Rodrigo Verdi

Journal of Financial Economics, 2015, vol. 116, issue 1, 179-196

Abstract: This paper investigates whether the U.S. repatriation tax for U.S. multinational corporations affects foreign investment. Our results show that the locked-out cash due to repatriation tax costs is associated with a higher likelihood of foreign (but not domestic) acquisitions. We also find a negative association between tax-induced foreign cash holdings and the market reaction to foreign deals. This result suggests that the investment activity of firms with high repatriation tax costs is viewed by the market as less value-enhancing than that of firms with low tax costs, consistent with foreign investment of firms with high repatriation tax costs possibly reflecting agency-driven behavior.

Keywords: Cash; Investment; Tax (search for similar items in EconPapers)
JEL-codes: F23 G34 H25 M40 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:116:y:2015:i:1:p:179-196

DOI: 10.1016/j.jfineco.2014.12.004

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