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

Date

2007

Authors

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

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Abstract

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 financially constrained firms and those that are more technology intensive exhibit a higher sensitivity of affiliate cash holdings to repatriation tax burdens.

Description

Keywords

Keywords: Cash; Repatriation; Taxes

Citation

Source

Journal of Financial Economics

Type

Journal article

Book Title

Entity type

Access Statement

License Rights

DOI

10.1016/j.jfineco.2006.11.006

Restricted until

2037-12-31