Trapped Cash and the Profitability of Foreign Acquisitions

• 成果类型: Article
• 署名作者: Edwards, Alexander; Kravet, Todd; Wilson, Ryan
• 署名单位: University of Toronto; University of Connecticut; University of Oregon
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12140
• 发表日期: 2016
• 页码: 44-77
• 关键词: cross-border mergers; corporate; taxes; FIRMS; Repatriation; gains; US; diversification; determinants

摘要

Current U.S. reporting and tax laws create an incentive for some U.S. firms to avoid the repatriation of foreign earnings, as the U.S. government charges additional corporate taxes on these transfers. Prior research suggests that the combined effect of these incentives leads some U.S. multinational corporations to hold a significant amount of cash overseas. In this study, we investigate the effect of cash trapped overseas on U.S. multinational corporations' foreign acquisitions. Consistent with expectations, we observe firms with high levels of trapped cash make less profitable acquisitions of foreign target firms using cash consideration (lower announcement window returns, lower buy and hold returns, decreased ROA). The American Jobs Creation Act of 2004 (AJCA) reduced this effect by allowing firms to repatriate foreign earnings held as cash abroad at a much lower tax cost. Our study has implications for current proposals to change the tax laws related to foreign earnings.