Publication Type

Journal Article

Version

acceptedVersion

Publication Date

7-2021

Abstract

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 U.K. 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.

Keywords

repatriation tax, agency conflicts, investment, internal capital

Discipline

Accounting | Corporate Finance

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

Accounting Review

Volume

96

Issue

4

First Page

1

Last Page

25

ISSN

0001-4826

Identifier

10.2308/TAR-2019-0259

Publisher

American Accounting Association

Copyright Owner and License

Authors

Comments

Nominated for the 2021 VHB Best Paper Award

Additional URL

https://doi.org/10.2308/TAR-2019-0259

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