Real Effects of Accounting Rules: Evidence from Multinational Firms’ Investment Location and Profit Repatriation Decisions
John R. Graham
Duke University; National Bureau of Economic Research (NBER)
Massachusetts Institute of Technology (MIT) - Sloan School of Management
Terry J. Shevlin
University of California-Irvine
August 20, 2010
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.
Number of Pages in PDF File: 59
Keywords: Investment, Reinvestment, Repatriation, Tax Expense, Multinational, Tax Policy, Tax Stimulus, Tax Reform
JEL Classification: M40, H20, H25
Date posted: April 17, 2009 ; Last revised: September 1, 2010
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