TY  - JOUR
AU  - Foley,C. Fritz
AU  - Hartzell,Jay C.
AU  - Titman,Sheridan
AU  - Twite,Garry
TI  - Why do firms hold so much cash? A tax-based explanation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12649
PY  - 2006
Y2  - October 2006
UR  - http://www.nber.org/papers/w12649
L1  - http://www.nber.org/papers/w12649.pdf
N1  - Author contact info:
C. Fritz Foley
Graduate School of Business Administration
Harvard University
Soldiers Field
Boston, MA 02163
Tel: 617/495-6375
Fax: 617/496-8443
E-Mail: ffoley@hbs.edu

Jay Hartzell
Finance Department
McCombs School of Business
University of Texas at Austin
Austin, TX 78712-1179
E-Mail: Jay.Hartzell@mccombs.utexas.edu

Sheridan Titman
Finance Department
McCombs School of Business
University of Texas at Austin
Austin, TX 78712-1179
Tel: 512/232-2787
Fax: 512/471-5073
E-Mail: titman@mail.utexas.edu

Garry Twite
School of Finance,
Actuarial Studies and Applied Statistics
Australian National University
Canberra ACT 0200
Australia
E-Mail: garry.twite@anu.edu.au
AB  - U.S. corporations hold significant amounts of cash on their balance sheets, and these cash holdings have been justified in the existing empirical literature by transaction costs and precautionary motives.  An additional explanation, considered in this study, is that U.S. multinational firms hold cash in their foreign subsidiaries because of the tax costs associated with repatriating foreign income. Consistent with this hypothesis, firms that face higher repatriation tax burdens hold higher levels of cash, hold this cash abroad, and hold this cash in affiliates that trigger high tax costs when repatriating earnings.  Estimates indicate that a one standard deviation increase in the tax burden from repatriating foreign income is associated with a 7.9% increase in the ratio of cash to net assets.  In addition, certain firms, specifically those that are less financially constrained domestically and those that are more technology intensive, exhibit a higher sensitivity of affiliate cash holdings to repatriation tax burdens.
ER  -