The effect of repatriation tax costs on U.S. multinational investment
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Verdi_The effect.pdf
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Author(s)
Hanlon, Michelle
Lester, Rebecca C
Verdi, Rodrigo
Date Issued
January 2015
Journal
Journal of Financial Economics
Publisher
Elsevier
Citation
Hanlon, Michelle, Rebecca Lester, and Rodrigo Verdi. “The Effect of Repatriation Tax Costs on U.S. Multinational Investment.” Journal of Financial Economics 116, 1 (April 2015): 179–196 © 2015 Elsevier B.V.
Version
Author's final manuscript
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
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
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DOI of Published Version
https://doi.org/10.1016/J.JFINECO.2014.12.004
