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Repatriation Taxes, Internal Agency Conflicts, and Subsidiary-level Investment Efficiency

Amberger, Harald and Markle, Kevin S. and Samuel, David M. P. (2018) Repatriation Taxes, Internal Agency Conflicts, and Subsidiary-level Investment Efficiency. WU International Taxation Research Paper Series, 2018-06. WU Vienna University of Economics and Business, Universität Wien, Vienna.

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Abstract

Using a global sample of multinational corporations (MNCs) and their foreign subsidiaries, we find that repatriation taxes impair subsidiary-level investment efficiency. Consistent with internal agency conflicts between central management of the MNC and the local management of its foreign subsidiary representing the economic channel, we find that this effect is concentrated in subsidiaries whose decision-making process has less involvement by central management, that are subject to weak monitoring, and where the MNC is flexible in deferring repatriations. We confirm our results and establish a likely causal relationship using natural experiments in the UK and Japan, which both eliminated repatriation taxes from their international tax systems in 2009. Our paper provides timely empirical evidence to inform expectations for the effects of a recent change to the U.S. international tax laws, which eliminated repatriation taxes from most of the future foreign earnings of U.S. MNCs.

Item Type: Paper
Additional Information: Editors: Eva Eberhartinger, Michael Lang, Rupert Sausgruber and Martin Zagler (Vienna University of Economics and Business), and Erich Kirchler (University of Vienna)
Keywords: repatriation tax, agency, investment, internal capital
Classification Codes: JEL Classification: H21, H25, F23, G31
Depositing User: ePub Administrator
Date Deposited: 03 Apr 2018 11:52
Last Modified: 09 Nov 2018 15:48
FIDES Link: https://bach.wu.ac.at/d/research/results/86458/
URI: http://epub.wu.ac.at/id/eprint/6198

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