The Effect of Foreign Cash Holdings on Internal Capital Markets and Firm Financing

55 Pages Posted: 11 Jul 2018 Last revised: 3 Nov 2018

See all articles by Lisa De Simone

Lisa De Simone

Stanford Graduate School of Business

Rebecca Lester

Stanford Graduate School of Business

Date Written: October 22, 2018

Abstract

Prior to 2018, U.S. repatriation taxes motivated companies to retain cash offshore. Using confidential jurisdiction-specific data from the Bureau of Economic Analysis, we find that firms with high tax-induced foreign cash have approximately 3.3 percent higher domestic liabilities relative to other multinationals, equivalent to $152.2 million more domestic debt per firm, or approximately $98.9-$141.9 billion in aggregate. We next examine motives for firms with tax-induced foreign cash to borrow domestically, finding this behavior is associated with shareholder payouts and some domestic investment spending. Finally, repatriations and intercompany loans from foreign subsidiaries act as substitutes and complements, respectively, to external borrowings.

Keywords: Cash, Tax, Debt

JEL Classification: M40, G32, G35, H25, F23

Suggested Citation

De Simone, Lisa and Lester, Rebecca, The Effect of Foreign Cash Holdings on Internal Capital Markets and Firm Financing (October 22, 2018). Stanford University Graduate School of Business Research Paper No. 18-32. Available at SSRN: https://ssrn.com/abstract=3199295 or http://dx.doi.org/10.2139/ssrn.3199295

Lisa De Simone

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States
650-723-3874 (Phone)
650-724-3083 (Fax)

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/lisa-de-simone

Rebecca Lester (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/rebecca-lester

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