Abstract

http://ssrn.com/abstract=2154662
 


 



The Location, Composition, and Investment Implications of Permanently Reinvested Earnings


Jennifer L. Blouin


University of Pennsylvania - Accounting Department

Linda K. Krull


University of Oregon

Leslie A. Robinson


Dartmouth College - Tuck School of Business

October 1, 2013


Abstract:     
This study uses permanently reinvested earnings (PRE) reported in U.S. multinational corporations (MNCs) financial statements, combined with detailed information on foreign affiliate assets to estimate the location, composition, and investment implications of PRE. We use these estimates to study the motivations for PRE designations and the implications of PRE for growth and liquidity. Our analyses suggest that PRE designations are driven by tax and growth incentives – 25 percent of PRE is located in affiliates residing in tax havens, and 34 percent of PRE is in high-growth affiliates. Furthermore, we find that a significant amount of PRE – 50 percent – is invested in non-financial assets. Given that a substantial portion of PRE is in non-financial assets, we investigate whether the SEC’s concerns regarding PRE and liquidity affect MNCs’ domestic investment activity. We find that MNCs with PRE have domestic investment that is less responsive to domestic investment opportunities and more sensitive to domestic cash implying that PRE firms have less efficient internal capital markets.

Number of Pages in PDF File: 43

Keywords: permanently reinvested earnings (PRE), APB 23, repatriation tax, foreign earnings

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Date posted: October 1, 2012 ; Last revised: December 24, 2013

Suggested Citation

Blouin, Jennifer L. and Krull, Linda K. and Robinson, Leslie A., The Location, Composition, and Investment Implications of Permanently Reinvested Earnings (October 1, 2013). Available at SSRN: http://ssrn.com/abstract=2154662 or http://dx.doi.org/10.2139/ssrn.2154662

Contact Information

Jennifer L. Blouin
University of Pennsylvania - Accounting Department ( email )
3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-1266 (Phone)

Linda K. Krull
University of Oregon ( email )
1208 University of Oregon
Eugene, OR 97403-1208
United States
541-346-3252 (Phone)
Leslie Robinson (Contact Author)
Dartmouth College - Tuck School of Business ( email )
Hanover, NH 03755
United States
603-646-4018 (Phone)
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