Foreign Cash: Taxes, Internal Capital Markets, and Agency Problems

• 成果类型: Article
• 署名作者: Harford, Jarrad; Wang, Cong; Zhang, Kuo
• 署名单位: University of Washington; University of Washington Seattle; China Europe International Business School; Xiamen University; Xiamen University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhw109
• 发表日期: 2017
• 页码: 1490
• 关键词: CORPORATE GOVERNANCE; EXPENDITURE ANNOUNCEMENTS; Firm value; INVESTMENT; FLOW; decisions; holdings; returns; diversification; constraints

摘要

When the fraction of a firm's cash held overseas is greater, its shareholders value that cash lower. This goes beyond a pure tax effect: the repatriation tax friction disrupts the firm's internal capital market, distorting its investment policy. Firms underinvest domestically and overinvest abroad. Our findings are more pronounced when firms are subject to higher repatriation tax rates, higher costs of borrowing, and more agency problems. Overall, our evidence suggests that a combination of taxes, financing frictions, and agency problems leads to a valuation discount for foreign cash and documents real effects of how foreign earnings are taxed.