The effect of parent companies' dividend policy on profit remittance of their foreign subsidiaries (in Japanese)

When income of firms is taxed on a world-wide basis and the home country's corporate income tax rate is very high, like in Japan whose tax rate is now the highest of the OECD countries, profit remittance from foreign subsidiaries faces a serious tax disadvantage and their income is better left at host countries of lower taxes. However, the fact does not support this for most of Japanese multinationals; their foreign ventures continue to send back part of their income to their parent companies in Japan. This paper tackles this "dividend puzzle" and seeks to solve it by linking parent companies' dividend policy with the profit remittance from abroad. The contributions of the study are first to use a firm-level micro data and second to combine the financial information of parents companies in Japan with that of their foreign subsidiaries to test whether foreign profit remittance has contributed to a stable dividend payment of parent companies. The answer is in the affirmative and the results that we report in the paper are as follows: profit remittance from abroad plays an important role to a stable dividend payment of parent companies; the cash demand of parent companies for paying their dividend affects remittance from abroad, and this applies in a more strict way for the foreign subsidiaries perfectly owned by Japanese parent firms.