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Why do firms hold so much cash? A tax-based explanation

Foley, C Fritz; Hartzell, Jay C; Titman, Sheridan; Twite, Garry


US corporations hold significant amounts of cash on their balance sheets. This paper develops and tests the hypothesis that the magnitude of US multinational cash holdings are, in part, a consequence of the tax costs associated with repatriating foreign income. Consistent with this hypothesis, firms facing higher repatriation taxes hold higher levels of cash, hold this cash abroad, and hold this cash in affiliates that trigger high tax costs when repatriating earnings. In addition, less...[Show more]

CollectionsANU Research Publications
Date published: 2007
Type: Journal article
Source: Journal of Financial Economics
DOI: 10.1016/j.jfineco.2006.11.006


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