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Territorial tax system reform and multinationals' foreign cash holdings: New evidence from Japan

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  • Xing, Jing

Abstract

Using matched affiliate-parent data, we investigate whether Japan's move from the worldwide tax system to the territorial tax system in 2009 affects cash holdings of Japanese overseas affiliates. We find that Japanese overseas affiliates facing high tax costs of repatriation under the worldwide tax system reduce cash holdings after the reform. Affiliates also deplete cash holdings after the reform if their parent companies rely on costly external financing or face strong domestic sales growth. The reform does not have a greater impact on affiliates with more pre-reform cash reserves. Our study provides new evidence for the impact of taxation on multinational companies' foreign cash holdings.

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  • Xing, Jing, 2018. "Territorial tax system reform and multinationals' foreign cash holdings: New evidence from Japan," Journal of Corporate Finance, Elsevier, vol. 49(C), pages 252-282.
    • Handle: RePEc:eee:corfin:v:49:y:2018:i:c:p:252-282
    DOI: 10.1016/j.jcorpfin.2018.01.012
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    Cited by:

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    2. Du, Yan & Goodell, John W. & Piljak, Vanja & Vulanovic, Milos, 2022. "Subsidiary financing choices: The roles of institutional distances from home countries," International Review of Financial Analysis, Elsevier, vol. 83(C).
    3. Makoto Hasegawa, 2023. "Territorial Tax Reform and Profit Shifting by US and Japanese Multinationals," National Tax Journal, University of Chicago Press, vol. 76(4), pages 771-804.
    4. Dhammika Dharmapala, 2018. "The Consequences of the TCJA's International Provisions: Lessons from Existing Research," CESifo Working Paper Series 7249, CESifo.
    5. Dong, Qi Flora & Cao, Yiting & Zhao, Xin & Deshmukh, Ashutosh, 2019. "Responses of US multinational firms to a temporary repatriation tax holiday: A literature review and synthesis," Journal of Accounting Literature, Elsevier, vol. 43(C), pages 108-123.
    6. Makoto HASEGAWA & Michi KAKEBAYASHI, 2023. "The Effect of Foreign Dividend Exemption on Profit Repatriation through Dividends, Royalties, and Interest: Evidence from Japan," Discussion papers e-20-004, Graduate School of Economics , Kyoto University.
    7. Muhammad Tahir & Haslindar Ibrahim & Abdul Hadi Zulkafli & Muhammad Mushtaq, 2020. "Influence of Exchange Rate Fluctuations and Credit Supply on Dividend Repatriation Policy of U.S. Multinational Corporations," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 267-290.

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