Understanding the Rise in Corporate Cash: Precautionary Savings or Foreign Taxes

57 Pages Posted: 11 Sep 2017

See all articles by Michael W. Faulkender

Michael W. Faulkender

University of Maryland - Robert H. Smith School of Business

Kristine Watson Hankins

University of Kentucky

Mitchell A. Petersen

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Date Written: September 2017

Abstract

What has driven the dramatic rise in U.S. corporate cash? Using non-public data, we show that the run-up is not uniform across firms but is concentrated in the foreign subsidiaries of multinational firms. Standard precautionary motives explain only domestic cash holdings, not these burgeoning foreign cash balances. Falling foreign tax rates, coupled with relaxed restrictions on income shifting, are the root of the changing foreign cash patterns. Firms with intellectual property have the greatest ability to shift income to low tax jurisdictions, and their foreign subsidiaries are where we observe the largest accumulations of cash.

Suggested Citation

Faulkender, Michael W. and Hankins, Kristine Watson and Petersen, Mitchell A., Understanding the Rise in Corporate Cash: Precautionary Savings or Foreign Taxes (September 2017). NBER Working Paper No. w23799. Available at SSRN: https://ssrn.com/abstract=3035145

Michael W. Faulkender (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Kristine Watson Hankins

University of Kentucky ( email )

College of Business & Economics
Lexington, KY 40506-0034
United States

Mitchell A. Petersen

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-467-1281 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
847-467-1281 (Phone)
847-491-5719 (Fax)

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