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Non-arm's-length transactions, offshore financial centres, transfer pricing agreements and corporate cash holdings: Evidence from U.S. multinational corporations

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  • Alghamdi, Fatmah Saeed
  • Eulaiwi, Baban
  • Hussein, Satam Salih
  • Duong, Lien
  • Taylor, Grantley

Abstract

This paper examines the association between non-arm's-length transactions, the existence of offshore financial centres, the existence of a transfer pricing agreement and corporate cash holdings for a large sample of U.S. multinational corporations over the 2006–2020 period. This study provides evidence that the existence of non-arm's-length transactions and of offshore financial centres increased the level of corporate cash holdings. In contrast, the existence of a transfer pricing agreement reduces the level of firm cash holdings. Overall, these results suggest that development of transfer pricing agreements with taxing authorities reduces multinational corporations' incentives and capacity to shift profits from higher- to lower-tax countries. These results remain robust to alternative specifications of cash holdings and endogeneity tests.

Suggested Citation

  • Alghamdi, Fatmah Saeed & Eulaiwi, Baban & Hussein, Satam Salih & Duong, Lien & Taylor, Grantley, 2024. "Non-arm's-length transactions, offshore financial centres, transfer pricing agreements and corporate cash holdings: Evidence from U.S. multinational corporations," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pa:s1057521924005210
    DOI: 10.1016/j.irfa.2024.103589
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    Keywords

    Non-arm's length transaction; Offshore financial centres; Transfer pricing agreement; Corporate cash holdings; U.S. multinational corporations;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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