How Does the U.S. Taxation of Foreign Earnings Affect Internal Capital Markets: Evidence from TIPRA 2005

Using a global sample of multinational corporations (MNCs) and their foreign subsidiaries, we find that repatriation taxes impair subsidiary-level investment efficiency. Consistent with internal agency conflicts between the central management of the MNC and the manager of the foreign subsidiary being the driver, we show that this effect is concentrated in subsidiaries with high information asymmetry and in subsidiaries that are weakly monitored. Quasi-natural experiments in the UK and Japan establish a causal relationship for our findings and suggest that a repeal of repatriation taxes increases subsidiary-level investment efficiency while reducing the level of investment. Our paper provides timely empirical evidence to inform expectations for the effects of a recent change to the U.S. international tax law that eliminated repatriation taxes from most of the future foreign earnings of U.S. MNCs.

show abstract

scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.

Contact Info

customersupport@researchsolutions.com

10624 S. Eastern Ave., Ste. A-614

Henderson, NV 89052, USA

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Blog Terms and Conditions API Terms Privacy Policy Contact Cookie Preferences Do Not Sell or Share My Personal Information

Made with 💙 for researchers

Part of the Research Solutions Family.

How Does the U.S. Taxation of Foreign Earnings Affect Internal Capital Markets: Evidence from TIPRA 2005

Cited by 3 publications

References 42 publications

Do Tax Deductions for Goodwill Impairments Affect Financial Reporting?

Do Tax Deductions for Goodwill Impairments Affect Financial Reporting?

Tax Planning through Advanced Tax Rulings – An Exploratory Analysis Using the Luxembourg Tax Leaks

Repatriation Taxes, Internal Agency Conflicts, and Subsidiary-Level Investment Efficiency

Contact Info

Product

Resources

About