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Dividends and Profits: Some Unsubtle Foreign Influences

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  • James R. Hines Jr.

Abstract

American corporations earn a large and growing share of their profits from their foreign operations. This paper evaluates the effect of foreign earnings on dividend payments by American corporations. The results suggest that the effect may be rather dramatic: that, all other things equal, U.S. corporations pay dividends out of foreign earnings at rates that are three times higher than their payout rates from domestic earnings. Why firms do so is unclear, though this behavior may be consistent with a signaling view of dividends. There is a curious tax consequence of this high payout rate on foreign earnings: the tax system, which grants foreign tax credits to U.S. corporations for the foreign taxes they pay, may receive more revenue from taxing the dividends of U.S. shareholders than from the corporate tax on foreign earnings.

Suggested Citation

  • James R. Hines Jr., 1991. "Dividends and Profits: Some Unsubtle Foreign Influences," NBER Working Papers 3730, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3730
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    Cited by:

    1. Weichenrieder, Alfons J., 1998. "Foreign profits and domestic investment," Journal of Public Economics, Elsevier, vol. 69(3), pages 451-463, September.
    2. Owen Lamont, 1998. "Earnings and Expected Returns," Journal of Finance, American Finance Association, vol. 53(5), pages 1563-1587, October.
    3. Rosanne Altshuler, 2000. "Recent Developments in the Debate on Deferral," Departmental Working Papers 200013, Rutgers University, Department of Economics.
    4. James R. Hines, Jr., 1994. "No Place Like Home: Tax Incentives and the Location of R&D by American Multinationals," NBER Chapters,in: Tax Policy and the Economy, Volume 8, pages 65-104 National Bureau of Economic Research, Inc.
    5. Roger H. Gordon & Joosung Jun & Joel Slemrod, 1993. "Taxes and the Form of Ownership of Foreign Corporate Equity," NBER Chapters,in: Studies in International Taxation, pages 13-46 National Bureau of Economic Research, Inc.
    6. Raj Chetty & Emmanuel Saez, 2007. "An Agency Theory of Dividend Taxation," NBER Working Papers 13538, National Bureau of Economic Research, Inc.
    7. Margaret Lamb & Andrew Lymer, 1999. "Taxation research in an accounting context: future prospects and interdisciplinary perspectives," European Accounting Review, Taylor & Francis Journals, vol. 8(4), pages 749-776.
    8. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "Dividend Policy inside the Firm," NBER Working Papers 8698, National Bureau of Economic Research, Inc.
    9. Bodnar, Gordon M. & Weintrop, Joseph, 1997. "The valuation of the foreign income of US multinational firms: a growth opportunities perspective," Journal of Accounting and Economics, Elsevier, vol. 24(1), pages 69-97, December.
    10. Stephanie E. Curcuru & Charles P. Thomas, 2014. "The Return on U.S. Direct Investment at Home and Abroad," NBER Chapters,in: Measuring Wealth and Financial Intermediation and Their Links to the Real Economy, pages 205-230 National Bureau of Economic Research, Inc.
    11. Annette Alstadsæter & Erik Fjærli, 2009. "Neutral taxation of shareholder income? Corporate responses to an announced dividend tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(4), pages 571-604, August.
    12. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier.
    13. Jan Bena & Jan Hanousek, 2008. "Rent Extraction by Large Shareholders: Evidence Using Dividend Policy in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(03-04), pages 106-130, May.
    14. repec:eee:glofin:v:34:y:2017:i:c:p:1-15 is not listed on IDEAS
    15. James R. Hines, Jr., 1996. "Tax Policy and the Activities of Multinational Corporations," NBER Working Papers 5589, National Bureau of Economic Research, Inc.
    16. John W. Budd & Matthew J.Slaughter, 2000. "Are Profits Shared Across Borders? Evidence on International Rent Sharing," NBER Working Papers 8014, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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