Working Paper: CEPR ID: DP17192
Authors: Olivier Darmouni; Lira Mota
Abstract: We construct a novel panel dataset to provide new evidence on how the largest nonfinancial firms manage their financial assets. Our granular data shows that, over the past decade, bond portfolios have grown to be at least as large as cash-like instruments, driven by the meteoric rise of corporate bond holdings. To shed light on the drivers of this growth, we conduct a pair of event studies around the 2017 tax reform and the 2020 liquidity crisis. Our new data suggests that the financial portfolios of corporate giants are primarily driven by cross-border tax incentives rather than liquidity motives.
Keywords: superstar firms; corporate cash; corporate bonds; repatriation; tax; liquidity management
JEL Codes: G32; G35; G11; E440
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax reform (H29) | Liquidation of financial assets (G33) |
| Tax reform (H29) | Reduction in corporate bond holdings (G32) |
| Tax incentives (H20) | Financial asset accumulation (G51) |
| 2020 liquidity crisis (F65) | Shift towards cash-like instruments (G19) |
| 2020 liquidity crisis (F65) | No increase in corporate bond holdings (G39) |