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Do Foreign Cash Holdings Generate Uncertainty for Market Participants?

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  • Michele Fabrizi
  • Antonio Parbonetti
  • Elisabetta Ipino
  • Michel Magnan

Abstract

Using a large sample of U.S. multinational firms during the 1993–2012 period, we test the hypothesis that foreign cash holdings generate uncertainty among market participants. We provide evidence that cash held abroad is associated with greater information uncertainty among analysts, and causes more dispersed beliefs and abnormal trading volumes among investors. Further analyses document that these results are mainly explained by foreign cash held in countries with low economic growth and high tax difference with respect to the US. Overall, our findings shed light on the economic consequences of foreign cash holdings and offer support to the SEC’s recent effort to encourage companies to increase disclosure about their cash holdings. S’appuyant sur un échantillon important composé de multinationales américaines durant la période 1993-2012, nous testons l’hypothèse que des liquidités trop importantes détenues à l’étranger augmentent le niveau d’incertitude parmi les intervenants sur les marchés financiers. De fait, nos résultats montrent que les liquidités détenues à l’étranger sont associées à une plus grande incertitude informationnelle auprès des analystes financiers, entraînant des anticipations de résultats plus dispersées ainsi qu’un niveau élevé de transactions anormales sur le titre. D’autres analyses montrent ces résultats sont principalement causés par les liquidités détenues dans des pays à faible croissance économique et où le différentiel entre le taux d’imposition de référence aux États-Unis et celui appliqué dans le pays est important. Globalement, nos résultats que les liquidités détenues à l’étranger ont une incidence importante sur l’asymétrie informationnelle prévalant sur les marchés financiers et permettent de comprendre l’intervention de la Securities & Exchange Commission qui encourage les entreprises à mieux divulguer leur situation en matière de liquidités.

Suggested Citation

  • Michele Fabrizi & Antonio Parbonetti & Elisabetta Ipino & Michel Magnan, 2016. "Do Foreign Cash Holdings Generate Uncertainty for Market Participants?," CIRANO Working Papers 2016s-22, CIRANO.
    • Handle: RePEc:cir:cirwor:2016s-22
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