The Effect of Repatriation Tax Costs on U.S. Multinational Investment
50 Pages Posted: 26 May 2014 Last revised: 9 Jun 2014
Date Written: May 23, 2014
This paper investigates whether the U.S. repatriation tax for U.S. multinational corporations (MNCs) affects foreign investment. Prior research shows that repatriation tax costs are positively associated with cash overseas, but the use of such cash is not well understood. Our results show that the locked-out cash due to repatriation tax costs is associated with a higher likelihood of foreign (but not domestic) acquisitions. We also find that the market reaction to an announcement of foreign acquisitions is more negative for firms with more locked-out cash. These results highlight an unintended consequence of U.S. tax policy on worldwide investment activity.
Keywords: Cash, Investment, Tax
JEL Classification: M40, G34, H25, F23
Suggested Citation: Suggested Citation