Real Effects of Accounting Rules: Evidence from Multinational Firms’ Investment Location and Profit Repatriation Decisions

59 Pages Posted: 17 Apr 2009 Last revised: 1 Sep 2010

See all articles by John R. Graham

John R. Graham

Duke University; National Bureau of Economic Research (NBER)

Michelle Hanlon

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Terry J. Shevlin

University of California-Irvine; University of California-Irvine

Date Written: August 20, 2010

Abstract

We analyze survey responses from nearly 600 tax executives to better understand corporate decisions about real investment location and profit repatriation. Our evidence indicates that avoiding financial accounting income tax expense is as important as avoiding cash taxes when corporations decide where to locate operations and whether to repatriate foreign earnings. This result is important in light of the recent research about whether financial accounting affects investment and in light of the decades of research on foreign investment that examines the role of cash taxes but heretofore has not investigated the importance of financial reporting effects. Our analysis suggests that financial reporting is an important factor to be considered in the policy debates focused on bringing investment to the U.S.

Keywords: Investment, Reinvestment, Repatriation, Tax Expense, Multinational, Tax Policy, Tax Stimulus, Tax Reform

JEL Classification: M40, H20, H25

Suggested Citation

Graham, John Robert and Hanlon, Michelle and Shevlin, Terry J. and Shevlin, Terry J., Real Effects of Accounting Rules: Evidence from Multinational Firms’ Investment Location and Profit Repatriation Decisions (August 20, 2010). Available at SSRN: https://ssrn.com/abstract=1389731 or http://dx.doi.org/10.2139/ssrn.1389731

John Robert Graham

Duke University ( email )

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National Bureau of Economic Research (NBER)

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Michelle Hanlon (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Terry J. Shevlin

University of California-Irvine ( email )

Paul Merage School of Business
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United States
2065509891 (Phone)

University of California-Irvine ( email )

Paul Merage School of Business
Irvine, CA 92697-3125
United States
949-824-6149 (Phone)

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