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http://ssrn.com/abstract=2154662
 
 

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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

July 8, 2014


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. Our analyses suggest that PRE designations are driven in part by tax and growth incentives – 24 percent of PRE is located in affiliates residing in tax havens, and 39 percent of PRE is in high-growth affiliates. Furthermore, we find that a significant amount of PRE – 45 percent – is invested in financial assets. Given that a substantial proportion of PRE is in financial assets, we investigate whether PRE affects MNCs’ domestic investment. We find that domestic investment by MNCs with PRE is less responsive to domestic investment opportunities and more sensitive to domestic cash flow, implying that PRE creates internal capital market frictions.

Number of Pages in PDF File: 49

Keywords: permanently reinvested earnings; repatriation tax; internal capital market efficiency

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Date posted: October 1, 2012 ; Last revised: August 17, 2014

Suggested Citation

Blouin, Jennifer L. and Krull, Linda K. and Robinson, Leslie A., The Location, Composition, and Investment Implications of Permanently Reinvested Earnings (July 8, 2014). 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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