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Taxes and Financial Assets: Valuing Permanently Reinvested Foreign Earnings

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  • Bryant–Kutcher, Lisa
  • Eiler, Lisa
  • Guenther, David A.

Abstract

We investigate the value of permanently reinvested earnings (PRE) of foreign subsidiaries of U.S. multinationals. We focus particularly on how firm value is affected by reinvesting PRE in financial rather than operating assets, where the reinvestment in financial assets is to avoid the U.S. repatriation tax. Consistent with prior studies, we find that the value of PRE is lower for those firms that disclose a positive U.S. tax associated with repatriation of PRE. Consistent with our hypothesis, we find that this lower value is concentrated in the subset of firms with high amounts of excess cash, our proxy for tax–related reinvestment in financial assets.

Suggested Citation

  • Bryant–Kutcher, Lisa & Eiler, Lisa & Guenther, David A., 2008. "Taxes and Financial Assets: Valuing Permanently Reinvested Foreign Earnings," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(4), pages 699-720, December.
    • Handle: RePEc:ntj:journl:v:61:y:2008:i:4:p:699-720
    DOI: 10.17310/ntj.2008.4.07
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    Cited by:

    1. Eric J. Allen & Susan C. Morse, 2013. "Tax-Haven Incorporation for U.S.-Headquartered Firms: No Exodus Yet," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(2), pages 395-420, June.
    2. Frey, Lisa & Engelhard, Lisa, 2017. "Review on tax research in accounting: Is the information given by U.S. GAAP income taxes also provided by IFRS?," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe B-28-17, University of Passau, Faculty of Business and Economics.
    3. Eiler, Lisa & Kutcher, Lisa, 2016. "SEC comment letters related to permanently reinvested earnings," Advances in accounting, Elsevier, vol. 34(C), pages 110-116.
    4. Jeffrey, Cynthia & Perkins, Jon D., 2014. "The Relationship between Energy Taxation and Business Environmental Protection Expenditures in the European Union," The International Journal of Accounting, Elsevier, vol. 49(4), pages 403-425.
    5. Laplante, Stacie K. & Nesbitt, Wayne L., 2017. "The relation among trapped cash, permanently reinvested earnings, and foreign cash," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 126-148.

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