Foreign Cash Holdings and the Investment and Payout Response of U.S. Multinational Corporations to Provisions of The Tax Cuts and Jobs Act Of 2017

Search for this publication on Google Scholar
Sofsky, W. (2021). Foreign Cash Holdings and the Investment and Payout Response of U.S. Multinational Corporations to Provisions of The Tax Cuts and Jobs Act Of 2017. Unc Charlotte Electronic Theses And Dissertations.
Download PDF

Analytics

112 views ◎
22 downloads ⇓


Abstract

The passage of the Tax Cuts and Jobs Act of 2017 (TCJA) provides a unique context in which to examine the effects of U.S. taxation of foreign earnings on the behavior of multi-national corporations (MNCs). Prior to the TCJA, the U.S. levied corporate income tax on an MNC’s worldwide earnings, deferred until firms repatriated the funds to U.S. The worldwide taxation and deferral until repatriation led to firms holding significant amounts of cash offshore. By 2017, there was an estimated $2.8 trillion of repatriatable funds "trapped" offshore. Prior legislation intended to encourage repatriation offered temporary "tax holiday" measures. The TCJA lowered corporate tax rates for all firms and eliminated future U.S. tax on repatriated earnings after payment of a one-time transition tax, creating a "permanent tax holiday" for foreign earnings. I examine the relationship between foreign cash holdings disclosed by MNCs in their fiscal year 2017 financial reports and their shareholder payout and investment behavior in the two years immediately following enactment of the TCJA. Similar to research into the effects of the temporary tax holidays in prior legislation, I find share repurchases in the post-TCJA period are associated with pre-TCJA foreign cash holdings. I further find that research and development and capital expenditures increase in the second year following the TCJA. These findings indicate that the foreign earnings provisions of the TCJA may have had some longer-term effects in line with its legislative intent. This contrasts with the findings of prior research and should be of interest to policymakers, particularly as the current administration considers changes to the corporate tax regime, while providing a basis for future research.

Details
Author

Sofsky, William

Title

Foreign Cash Holdings and the Investment and Payout Response of U.S. Multinational Corporations to Provisions of The Tax Cuts and Jobs Act Of 2017

Physical Description

1 online resource (134 pages) : PDF

Date

2021

Degree Granting Institution

University of North Carolina at Charlotte

Abstract

The passage of the Tax Cuts and Jobs Act of 2017 (TCJA) provides a unique context in which to examine the effects of U.S. taxation of foreign earnings on the behavior of multi-national corporations (MNCs). Prior to the TCJA, the U.S. levied corporate income tax on an MNC’s worldwide earnings, deferred until firms repatriated the funds to U.S. The worldwide taxation and deferral until repatriation led to firms holding significant amounts of cash offshore. By 2017, there was an estimated $2.8 trillion of repatriatable funds "trapped" offshore. Prior legislation intended to encourage repatriation offered temporary "tax holiday" measures. The TCJA lowered corporate tax rates for all firms and eliminated future U.S. tax on repatriated earnings after payment of a one-time transition tax, creating a "permanent tax holiday" for foreign earnings. I examine the relationship between foreign cash holdings disclosed by MNCs in their fiscal year 2017 financial reports and their shareholder payout and investment behavior in the two years immediately following enactment of the TCJA. Similar to research into the effects of the temporary tax holidays in prior legislation, I find share repurchases in the post-TCJA period are associated with pre-TCJA foreign cash holdings. I further find that research and development and capital expenditures increase in the second year following the TCJA. These findings indicate that the foreign earnings provisions of the TCJA may have had some longer-term effects in line with its legislative intent. This contrasts with the findings of prior research and should be of interest to policymakers, particularly as the current administration considers changes to the corporate tax regime, while providing a basis for future research.

Genre

doctoral dissertations

Subjects--Topics

Accounting

Degree

D.B.A.

Keywords

Foreign Cash
Tax Cuts and Jobs Act

Subject Area

Business Administration

Advisor(s)

Burton, Hughlene

Committee Members

Cathey, Jack
Martin, Gregory
King, Tao-Hsien Dolly

Degree Note

Thesis (D.B.A.)--University of North Carolina at Charlotte, 2021.

Rights Statement

This Item is protected by copyright and/or related rights. You are free to use this Item in any way that is permitted by the copyright and related rights legislation that applies to your use. For other uses you need to obtain permission from the rights-holder(s). For additional information, see http://rightsstatements.org/page/InC/1.0/.

Rights Holder Information

Copyright is held by the author unless otherwise indicated.

Identifier

Sofsky_uncc_0694D_12710

Permalink

http://hdl.handle.net/20.500.13093/etd:1829