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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. (2019) 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 the central management of the MNC and the manager of the foreign subsidiary being the driver, we find that this effect is prevalent in subsidiaries with high information asymmetry, in subsidiaries that are weakly monitored, and subsidiaries of cash-rich MNCs. Natural experiments in the UK and Japan establish a causal relationship for our findings and suggest that a repeal of repatriation taxes increases subsidiary-level investment efficiency while reducing the level of investment. Our paper provides timely empirical evidence to inform expectations for the effects of a recent change to the U.S. international tax law 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: 10 May 2019 12:03
FIDES Link: https://bach.wu.ac.at/d/research/results/86458/
URI: http://epub.wu.ac.at/id/eprint/6198

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