Do low repatriations of foreign earnings impact cash flow? An analysis of the effect of Tax Code §965 on multinational corporations

Abstract

The tax holiday on repatriations of foreign earnings instituted by the AJCA did not have the effect of increased U.S. investment its writers intended, but it was taken advantage of by many companies for different reasons. Congress has in recent years considered instituting another such holiday, but little research has been done on the effect of the holiday on companies’ financial health. After the holiday ended, many companies repatriated fewer earnings yearly than they had before the holiday, which may have affected companies’ cash flow. This study investigated the effect of the holiday on cash flow, with reference to several factors that may have added to the effect, using sample of thirty large multinational corporations. The factors examined include the extent to which a company’s operations were overseas, the use of tax havens, and the proportion repatriated of allowed unrepatriated foreign earnings were considered. Regression analysis indicated that the holiday had no statistically significant effect on cash flow, except in that a more extensive use of tax havens was correlated with decreased cash flow.