Market Pressure and Multinational Corporations’ Tax-Motivated Decisions: Evidence from an SEC Experiment

44 Pages Posted: 22 Jun 2020

See all articles by Jeong-Bon Kim

Jeong-Bon Kim

City University of Hong Kong

Kenneth J. Klassen

University of Waterloo - School of Accounting and Finance

Betty (Bin) Xing

Baylor University

Date Written: June 13, 2019

Abstract

We examine the role of capital market pressure in firms' international tax-motivated decisions. We use two exogenous events to identify the relation: the temporary lifting of short selling restrictions for randomly selected pilot firms under SEC Regulation SHO (called Pilot firms) and the repatriation tax holiday under the American Jobs Creation Act that occurred in this time period. We document that the Pilot firms are more likely to respond to the tax holiday only when they have foreign losses or generally do not repatriate foreign earnings. We also find that Pilot firms repatriate more, on average. This evidence is consistent with managers generally facing a conflict between self-serving international investment decisions and value-enhancing tax-motivated investment decisions, but this situation is mitigated by greater monitoring by active short sellers that occurs when short-selling restrictions are absent.

Keywords: International Tax, Repatriation, AJCA, Reg SHO, Internal Capital Market

Suggested Citation

Kim, Jeong-Bon and Klassen, Kenneth and Xing, Betty (Bin), Market Pressure and Multinational Corporations’ Tax-Motivated Decisions: Evidence from an SEC Experiment (June 13, 2019). Available at SSRN: https://ssrn.com/abstract=3590737 or http://dx.doi.org/10.2139/ssrn.3590737

Jeong-Bon Kim

City University of Hong Kong ( email )

Department of Accountancy
83 Tat Chee Avenue
Kowloon Tong
Hong Kong
852-3442-7909 (Phone)

Kenneth Klassen

University of Waterloo - School of Accounting and Finance ( email )

Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x38550 (Phone)
519-888-7562 (Fax)

Betty (Bin) Xing (Contact Author)

Baylor University ( email )

1 Bear Pl # 78002
Waco, TX Texas 76798-0006
United States
5195909329 (Phone)

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