The Effect of Income Shifting Incentives on Share Repurchases Evidence from U.S. Multinational Corporations

Abstract

Research AbstractThis study analyzes the association between income shifting incentives and share repurchases using a hand-collected sample of U.S. multinational corporations (MNCs) from 2006 to 2020. We find a significant negative association between income shifting and share repurchases. Additionally, the negative relationship between income shifting and share repurchases is stronger in firms with high repatriation costs. However, in firms with an advance pricing agreement with the Internal Revenue Service, a positive association between income shifting and share repurchases is evident. Our findings are robust to tests that address self-selection bias (propensity score matching) and endogeneity (difference-in-differences).

Keywords: Income shifting, share repurchases, Advance Pricing Agreement, repatriation costs, U.S. multinational corporations