Taxation of International Investment and Accounting Valuation

Posted: 7 Jul 2008

See all articles by Anja De Waegenaere

Anja De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER

Richard C. Sansing

Tuck School of Business at Dartmouth

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Date Written: July 7, 2008

Abstract

This paper develops a model of a firm's foreign investment decisions and characterizes its optimal investment and repatriation strategies. It then derives the theoretical relation between the level of a foreign subsidiary's permanently reinvested earnings as reported in the income tax footnote and the value of the subsidiary to the parent. It shows that the valuation relevance of this item depends on whether the earnings are invested in operating assets or financial assets. It also shows the effects of a temporary tax holiday on firm value.

Keywords: Taxation, multinational investment, permanently reinvested earnings, tax holidays

JEL Classification: G31, G12, M41, H87

Suggested Citation

De Waegenaere, Anja M.B. and Sansing, Richard C., Taxation of International Investment and Accounting Valuation (July 7, 2008). Contemporary Accounting Research, Vol. 25, No. 4, 2008. Available at SSRN: https://ssrn.com/abstract=1156506

Anja M.B. De Waegenaere

Tilburg University - Department of Econometrics & OR, Netspar, and CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Richard C. Sansing (Contact Author)

Tuck School of Business at Dartmouth ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-0392 (Phone)
603-646-1308 (Fax)

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