U.S. Multinational Corporations’ Foreign Cash Holdings: An Empirical Estimate and Its Valuation Consequences

60 Pages Posted: 13 Jun 2013 Last revised: 18 Apr 2018

John L. Campbell

University of Georgia - J.M. Tull School of Accounting

Dan S. Dhaliwal

University of Arizona - Department of Accounting

Linda K. Krull

University of Oregon

Casey M. Schwab

Indiana University - Kelley School of Business - Department of Accounting

Date Written: April 6, 2018

Abstract

Regulators have recently expressed concern that existing disclosure rules prevent financial users from fully understanding the location of a firm’s operations. In this study, we develop an estimate of the location of firms’ cash holdings using financial statement data and validate our estimate with simulated and proprietary data. We then investigate whether agency costs of free cash flows differ for foreign versus domestic cash holdings and offer two main results. First, contrary to prior literature, we find that aggregate excess foreign cash holdings do not have a more negative effect on the marginal value of cash than excess domestic cash holdings during our sample period. However, we do find that excess foreign cash held in high agency cost environments has a more negative effect on the marginal value of cash than both excess domestic cash holdings and excess foreign cash holdings held in lower agency cost environments. Moreover, this result is driven by a variety of country characteristics that increase agency costs and is not explained by any single characteristic (e.g., corruption, economic growth, taxes, etc.).

Suggested Citation

Campbell, John L. and Dhaliwal, Dan S. and Krull, Linda K. and Schwab, Casey M., U.S. Multinational Corporations’ Foreign Cash Holdings: An Empirical Estimate and Its Valuation Consequences (April 6, 2018). Available at SSRN: https://ssrn.com/abstract=2277804 or http://dx.doi.org/10.2139/ssrn.2277804

John L. Campbell

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States
706.542.3595 (Phone)
706.542.3630 (Fax)

Dan S. Dhaliwal

University of Arizona - Department of Accounting ( email )

McClelland Hall
PO Box 210108
Tucson, AZ 85721
United States

Linda K. Krull (Contact Author)

University of Oregon ( email )

1208 University of Oregon
Eugene, OR 97403-1208
United States
541-346-3252 (Phone)

Casey M. Schwab

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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