Working Paper: NBER ID: w23799
Authors: Michael W. Faulkender; Kristine W. Hankins; Mitchell A. Petersen
Abstract: What has driven the dramatic rise in U.S. corporate cash? Using non-public data, we show that the run-up is not uniform across firms but is concentrated in the foreign subsidiaries of multinational firms. Standard precautionary motives explain only domestic cash holdings, not these burgeoning foreign cash balances. Falling foreign tax rates, coupled with relaxed restrictions on income shifting, are the root of the changing foreign cash patterns. Firms with intellectual property have the greatest ability to shift income to low tax jurisdictions, and their foreign subsidiaries are where we observe the largest accumulations of cash.
Keywords: Corporate Cash; Precautionary Savings; Foreign Taxes
JEL Codes: G31; G32; G35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| intellectual property (O34) | shifting income to low-tax jurisdictions (H26) |
| international sales growth (F69) | foreign cash accumulation (F31) |
| passive responses to declining foreign tax rates (H26) | foreign cash accumulation (F31) |
| active income shifting behaviors (H32) | foreign cash accumulation (F31) |
| falling foreign tax rates (F23) | increase in foreign cash holdings (F31) |
| precautionary savings motives (D14) | increase in domestic cash holdings (G59) |
| effective tax rates (H29) | foreign cash holdings (F31) |
| precautionary savings motives (D14) | foreign cash positions (F31) |