Download this Paper Open PDF in Browser

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

54 Pages Posted: 1 Oct 2012 Last revised: 19 Jan 2018

Jennifer Blouin

University of Pennsylvania - Accounting Department

Linda K. Krull

University of Oregon

Leslie A. Robinson

Dartmouth College - Accounting; Tuck School of Business at Dartmouth

Date Written: January 2017

Abstract

This study estimates the location, composition, and investment implications of permanently reinvested earnings (PRE) reported in U.S. multinational corporations’ (MNCs) consolidated financial statements. Our first set of analyses suggest that firms’ PRE designations are motivated by both financial reporting incentives (i.e., tax expense deferral) and investment opportunities. 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 – 54 percent – is invested in financial assets.Our second set of analyses find that domestic investment by MNCs with PRE is less responsive to domestic investment opportunities and more sensitive to domestic cash flow than firms without PRE, consistent with PRE indicating internal capital market frictions. We conclude that financial statement users could benefit from enhanced disclosures about foreign operations.

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

Suggested Citation

Blouin, Jennifer and Krull, Linda K. and Robinson, Leslie A., The Location, Composition, and Investment Implications of Permanently Reinvested Earnings (January 2017). Available at SSRN: https://ssrn.com/abstract=2154662 or http://dx.doi.org/10.2139/ssrn.2154662

Jennifer 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 - Accounting ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-4018 (Phone)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States

Paper statistics

Downloads
1,272
rank
12,550
Abstract Views
4,031