IDEAS home Printed from https://ideas.repec.org/a/eee/jocaae/v7y2011i1p18-30.html
   My bibliography  Save this article

An empirical investigation of the effect of imputation credits on remittance of overseas dividends

Author

Listed:
  • Chen, Ming-Chin
  • Gupta, Sanjay

Abstract

Overseas dividend remittance is an important vehicle for multinational corporations (MNCs) to move funds among their global subsidiaries. Using firm-level data from 2001 to 2004 for Taiwan-based MNCs with subsidiaries in China, this paper provides empirical evidence on the effect of imputation credits on overseas dividend remittances. We find that imputation credits have a positive effect on increasing foreign dividend payouts, thereby reducing the efficiency loss induced by the tax cost for within-firm dividends of MNCs. We also document evidence that parent companies’ net fund flows from related-party transactions with their subsidiaries are negatively correlated with dividends repatriated from those affiliates, supporting the notion that transfer-pricing may be substituting for within-firm dividend remittance. Our results contribute to understanding the links between taxation and related-party transactions and subsidiary dividend repatriation decisions of MNCs.

Suggested Citation

  • Chen, Ming-Chin & Gupta, Sanjay, 2011. "An empirical investigation of the effect of imputation credits on remittance of overseas dividends," Journal of Contemporary Accounting and Economics, Elsevier, vol. 7(1), pages 18-30.
    • Handle: RePEc:eee:jocaae:v:7:y:2011:i:1:p:18-30
    DOI: 10.1016/j.jcae.2011.06.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S181556691100004X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcae.2011.06.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. James R. Hines, Jr. & R. Glenn Hubbard, 1990. "Coming Home to America: Dividend Repatriations by US Multinationals," NBER Chapters, in: Taxation in the Global Economy, pages 161-208, National Bureau of Economic Research, Inc.
    2. Altshuler, Rosanne & Grubert, Harry, 2001. "Where Will They Go if We Go Territorial? Dividend Exemption and the Location Decisions of U.S. Multinational Corporations," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(4), pages 787-809, December.
    3. Grubert, Harry & Mutti, John, 1991. "Taxes, Tariffs and Transfer Pricing in Multinational Corporate Decision Making," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 285-293, May.
    4. Desai, Mihir A. & Foley, C. Fritz & Hines, James R. Jr., 2001. "Repatriation Taxes and Dividend Distortions," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(4), pages 829-851, December.
    5. David Harris & Randall Morck & Joel B. Slemrod, 1993. "Income Shifting in U.S. Multinational Corporations," NBER Chapters, in: Studies in International Taxation, pages 277-308, National Bureau of Economic Research, Inc.
    6. James R. Hines & Eric M. Rice, 1994. "Fiscal Paradise: Foreign Tax Havens and American Business," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 149-182.
    7. Giovannini, Alberto & Hubbard, R. Glenn & Slemrod, Joel (ed.), 1993. "Studies in International Taxation," National Bureau of Economic Research Books, University of Chicago Press, edition 1, number 9780226297019, July.
    8. Fritz Foley, C. & Hartzell, Jay C. & Titman, Sheridan & Twite, Garry, 2007. "Why do firms hold so much cash? A tax-based explanation," Journal of Financial Economics, Elsevier, vol. 86(3), pages 579-607, December.
    9. Alli, Kasim L & Khan, A Qayyum & Ramirez, Gabriel G, 1993. "Determinants of Corporate Dividend Policy: A Factorial Analysis," The Financial Review, Eastern Finance Association, vol. 28(4), pages 523-547, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chia-Wen Chang & Ming-Chin Chen & Vincent Y.S. Chen, 2017. "Are Corporate Tax Reductions Real Benefits under Imputation Systems?," European Accounting Review, Taylor & Francis Journals, vol. 26(2), pages 215-237, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fritz Foley, C. & Hartzell, Jay C. & Titman, Sheridan & Twite, Garry, 2007. "Why do firms hold so much cash? A tax-based explanation," Journal of Financial Economics, Elsevier, vol. 86(3), pages 579-607, December.
    2. James R. Hines Jr., 2005. "Do Tax Havens Flourish?," NBER Chapters, in: Tax Policy and the Economy, Volume 19, pages 65-100, National Bureau of Economic Research, Inc.
    3. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2002. "Chains of Ownership, Regional Tax Competition, and Foreign Direct Investment," NBER Working Papers 9224, National Bureau of Economic Research, Inc.
    4. Desai, Mihir A. & Foley, C. Fritz & Hines, James Jr., 2004. "Foreign direct investment in a world of multiple taxes," Journal of Public Economics, Elsevier, vol. 88(12), pages 2727-2744, December.
    5. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995, Elsevier.
    6. Tajika, Eiji & 田近, 栄治 & Nakatani, Ryota & 中谷, 亮太, 2008. "Welcome Home to Japan: Repatriation of Foreign Profits by Japanese Multinationals," Discussion Papers 2008-04, Graduate School of Economics, Hitotsubashi University.
    7. Michael P Devereux, 2007. "The Impact of Taxation on the Location of Capital, Firms and Profit: a Survey of Empirical Evidence," Working Papers 0702, Oxford University Centre for Business Taxation.
    8. Desai, Mihir A. & Foley, C. Fritz & Hines, James Jr., 2006. "The demand for tax haven operations," Journal of Public Economics, Elsevier, vol. 90(3), pages 513-531, February.
    9. Dong, Qi Flora & Cao, Yiting & Zhao, Xin & Deshmukh, Ashutosh, 2019. "Responses of US multinational firms to a temporary repatriation tax holiday: A literature review and synthesis," Journal of Accounting Literature, Elsevier, vol. 43(C), pages 108-123.
    10. George Zodrow, 2006. "Capital Mobility and Source-Based Taxation of Capital Income in Small Open Economies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(2), pages 269-294, May.
    11. Hanlon, Michelle & Heitzman, Shane, 2010. "A review of tax research," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 127-178, December.
    12. Mihir A. Desai & C. Fritz Foley & James R. Hines, 2004. "Economic Effects of Regional Tax Havens," NBER Working Papers 10806, National Bureau of Economic Research, Inc.
    13. Bradley, Sebastien, 2012. "Investor Responses to Dividends Received Deductions: Rewarding Multinational Tax Avoidance?," School of Economics Working Paper Series 2012-10, LeBow College of Business, Drexel University.
    14. Hasegawa, Makoto & Kiyota, Kozo, 2017. "The effect of moving to a territorial tax system on profit repatriation: Evidence from Japan," Journal of Public Economics, Elsevier, vol. 153(C), pages 92-110.
    15. James R. Hines, Jr., 1995. "Taxes, Technology Transfer, and the R&D Activities of Multinational Firms," NBER Chapters, in: The Effects of Taxation on Multinational Corporations, pages 225-252, National Bureau of Economic Research, Inc.
    16. James R. Hines Jr. & Lawrence H. Summers, 2009. "How Globalization Affects Tax Design," NBER Chapters, in: Tax Policy and the Economy, Volume 23, pages 123-157, National Bureau of Economic Research, Inc.
    17. Kevin S Markle, 2012. "A Comparison of the Tax-motivated Income Shifting of Multinationals in Territorial and Worldwide Countries," Working Papers 1206, Oxford University Centre for Business Taxation.
    18. Muhammad Tahir & Haslindar Ibrahim & Abdul Hadi Zulkafli & Muhammad Mushtaq, 2020. "Influence of Exchange Rate Fluctuations and Credit Supply on Dividend Repatriation Policy of U.S. Multinational Corporations," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(special i), pages 267-290.
    19. Desai, Mihir A. & Hines, James R. Jr., 2002. "Expectations and Expatriations: Tracing the Causes and Consequences of Corporate Inversions," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(3), pages 409-440, September.
    20. De Simone, Lisa & Klassen, Kenneth J. & Seidman, Jeri K., 2022. "The effect of income-shifting aggressiveness on corporate investment," Journal of Accounting and Economics, Elsevier, vol. 74(1).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jocaae:v:7:y:2011:i:1:p:18-30. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/journal-of-contemporary-accounting-and-economics .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.