Journal article
Trapped Cash and the Profitability of Foreign Acquisitions
Contemporary accounting research, Vol.33(1), pp.44-77
03/01/2016
DOI: 10.1111/1911-3846.12140
Abstract
Current U.S. reporting and tax laws create an incentive for some U.S. firms to avoid the repatriation of foreign earnings, as the U.S. government charges additional corporate taxes on these transfers. Prior research suggests that the combined effect of these incentives leads some U.S. multinational corporations to hold a significant amount of cash overseas. In this study, we investigate the effect of cash trapped overseas on U.S. multinational corporations' foreign acquisitions. Consistent with expectations, we observe firms with high levels of trapped cash make less profitable acquisitions of foreign target firms using cash consideration (lower announcement window returns, lower buy and hold returns, decreased ROA). The American Jobs Creation Act of 2004 (AJCA) reduced this effect by allowing firms to repatriate foreign earnings held as cash abroad at a much lower tax cost. Our study has implications for current proposals to change the tax laws related to foreign earnings.
Details
- Title: Subtitle
- Trapped Cash and the Profitability of Foreign Acquisitions
- Creators
- Alexander Edwards - University of TorontoTodd Kravet - University of ConnecticutRyan Wilson - University of Oregon
- Resource Type
- Journal article
- Publication Details
- Contemporary accounting research, Vol.33(1), pp.44-77
- Publisher
- Wiley
- DOI
- 10.1111/1911-3846.12140
- ISSN
- 0823-9150
- eISSN
- 1911-3846
- Number of pages
- 34
- Grant note
- Rotman School of Management, University of Toronto Lundquist College of Business, University of Oregon School of Business, University of Connecticut
- Language
- English
- Date published
- 03/01/2016
- Academic Unit
- Accounting
- Record Identifier
- 9984380383902771
Metrics
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