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Multinationals and the High Cash Holdings Puzzle

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  • Lee Pinkowitz
  • René M. Stulz
  • Rohan Williamson

Abstract

Defining as normal cash holdings the holdings a firm with the same characteristics would have had in the late 1990s, we find that the abnormal cash holdings of U.S. firms after the crisis represent on average 1.86% of assets. While U.S. firms held less cash than comparable foreign firms in the late 1990s, by 2010 they hold more. However, only U.S. multinational firms experience an increase in abnormal cash holdings during the 2000s. U.S. multinational firms had cash holdings similar to those of purely domestic firms in the late 1990s, but they hold over 3% more assets in cash than comparable purely domestic firms after the crisis. Further, U.S. multinationals increased their cash holdings since the late 1990s relative to foreign multinationals by roughly the same percentage as they increased their cash holdings relative to U.S. domestic firms. A detailed analysis shows that the increase in cash holdings of multinational firms cannot be explained by the tax treatment of profit repatriations, that it is intrinsically linked to their R&D intensity, and that firms that become multinational do not increase their abnormal cash holdings after they become multinational. There is no evidence that poor investment opportunities, regulation, or poor governance can explain the abnormal cash holdings of U.S. firms after the crisis.

Suggested Citation

  • Lee Pinkowitz & René M. Stulz & Rohan Williamson, 2012. "Multinationals and the High Cash Holdings Puzzle," NBER Working Papers 18120, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18120
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    3. Joel Rabinovich, 2018. "The financialisation of the nonfinancial corporation. A critique to the financial rentieralization hypothesis," CEPN Working Papers hal-01691435, HAL.
    4. Juan M. Sánchez & Emircan Yurdagul, 2013. "Why are U.S. firms holding so much cash? an exploration of cross-sectional variation," Review, Federal Reserve Bank of St. Louis, issue July, pages 293-325.
    5. Moshirian, Fariborz & Nanda, Vikram & Vadilyev, Alexander & Zhang, Bohui, 2017. "What drives investment–cash flow sensitivity around the World? An asset tangibility Perspective," Journal of Banking & Finance, Elsevier, vol. 77(C), pages 1-17.
    6. Juan M. Sánchez & Emircan Yurdagul, 2012. "Can repatriation taxes explain the recent increase in cash holdings?," Economic Synopses, Federal Reserve Bank of St. Louis.
    7. Bridgman, Benjamin, 2014. "Do intangible assets explain high U.S. foreign direct investment returns?," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 159-171.
    8. repec:ehu:rdadme:24893 is not listed on IDEAS
    9. Wacker, Konstantin M., 2013. "On the measurement of foreign direct investment and its relationship to activities of multinational corporations," Working Paper Series 1614, European Central Bank.
    10. Chinmoy Ghosh & Fan He, 2015. "Investor Protection, Investment Efficiency and Value: The Case of Cross-Listed Firms," Financial Management, Financial Management Association International, vol. 44(3), pages 499-546, September.
    11. International Monetary Fund, 2014. "Canada; Selected Issues," IMF Staff Country Reports 14/28, International Monetary Fund.
    12. Joel Rabinovich, 2017. "The financialisation of the nonfinancial corporation. A critique to the financial rentieralization hypothesis," CEPN Working Papers 2017-22, Centre d'Economie de l'Université de Paris Nord.
    13. repec:oup:indcch:v:26:y:2017:i:1:p:1-20. is not listed on IDEAS
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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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