Multinationals and the High Cash Holdings Puzzle
Fisher College of Business Working Paper No.10
Charles A. Dice Center Working Paper No. 2012-10
ECGI - Finance Working Paper No. 334/2012
Georgetown McDonough School of Business Research Paper No. 2012-13
59 Pages Posted: 23 May 2012 Last revised: 21 Apr 2013
There are 2 versions of this paper
Multinationals and the High Cash Holdings Puzzle
Multinationals and the High Cash Holdings Puzzle
Date Written: May 21, 2012
Abstract
Defining as normal cash holdings the holdings a firm with the same characteristics would have had in the late 1990s, we find that the abnormal cash holdings of U.S. firms after the crisis represent on average 1.86% of assets. While U.S. firms held less cash than comparable foreign firms in the late 1990s, by 2010 they hold more. However, only U.S. multinational firms experience an increase in abnormal cash holdings during the 2000s. U.S. multinational firms had cash holdings similar to those of purely domestic firms in the late 1990s, but they hold over 3% more assets in cash than comparable purely domestic firms after the crisis. Further, U.S. multinationals increased their cash holdings since the late 1990s relative to foreign multinationals by roughly the same percentage as they increased their cash holdings relative to U.S. domestic firms. A detailed analysis shows that the increase in cash holdings of multinational firms cannot be explained by the tax treatment of profit repatriations, that it is intrinsically linked to their R&D intensity, and that firms that become multinational do not increase their abnormal cash holdings after they become multinational. There is no evidence that poor investment opportunities, regulation, or poor governance can explain the abnormal cash holdings of U.S. firms after the crisis.
Keywords: Cash holdings, multinational corporations, financial crisis, research and development
JEL Classification: G32, F23
Suggested Citation: Suggested Citation
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