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Foreign Exposure Level And The Impact Of The 2017 Tax Cuts And Jobs Act On Valuation Of Us Multinational Companies

Author

Listed:
  • Gow-Cheng Huang
  • Herman Manakyan
  • Ani Mathers

Abstract

U.S. multinational corporations conduct a significant amount of their business and book a significant portion of their sales and profits in foreign countries. Prior to the passage of the Tax Cuts and Jobs Act, which was signed into law by President Trump on December 22, 2017, income generated by US multinational corporations was not subject to US taxation until repatriated to the US. The Tax Cuts and Jobs Act reduced US corporate tax rates, changed the corporate taxation of US multinational corporations to a territorial system, and created an immediate tax liability for US multinationals’ deemed repatriation of their past foreign earnings. This study examines the impact of these complex changes to the US corporate tax system on the short-term valuation of US multinational firms. Our results indicate the Tax Cuts and Jobs Act had a net negative impact on US multinational corporations’ valuation in the short-term, with higher levels of foreign exposure leading to lower returns. Our results are robust to alternate measures of foreign exposure and abnormal returns.

Suggested Citation

  • Gow-Cheng Huang & Herman Manakyan & Ani Mathers, 2020. "Foreign Exposure Level And The Impact Of The 2017 Tax Cuts And Jobs Act On Valuation Of Us Multinational Companies," Accounting & Taxation, The Institute for Business and Finance Research, vol. 12(1), pages 11-22.
    • Handle: RePEc:ibf:acttax:v:12:y:2020:i:1:p:11-22
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    Citations

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    Cited by:

    1. Hansen, Erwin & Wagner, Rodrigo, 2022. "The reinvestment by multinationals as a capital flow: Crises, imbalances, and the cash-based current account," Journal of International Money and Finance, Elsevier, vol. 124(C).
    2. Kale, Arati & Kale, Devendra, 2023. "Do exogenous economic crises change investors’ response to earnings announcements?: A detailed review using the data from COVID-19 pandemic," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).

    More about this item

    Keywords

    Valuation; Multinational Corporations; Tax Cut and Jobs Act;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies

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