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Do Tax Havens Affect Financial Management? The Case of U.S. Multinational Companies

Author

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  • Alessandro Chiari

    (Institute of Economic Studies, Charles University, Prague, Czech Republic)

Abstract

This study examines whether the use of tax haven subsidiaries by U.S. multinational corporations (MNCs) is associated with more intense use of share buybacks and with improvement in management's ability to generating revenues. I find that MNCs' more intensive tax haven subsidiary use is positively associated with a higher management score, a higher buyback ratio, and a higher level of free cash flow. I also find a higher increase in the buyback ratio of U.S. companies following the sales of U.S. stocks from entities located in tax havens. In cross-sectional analyses, I identify channels through which the positive association between tax haven intensity and share buybacks is more pronounced. I also test the share buyback execution of U.S. MNCs affected by recent legislation promulgated in the U.S. (2017 corporate tax cut, 2017 repatriation tax). Our findings reveal a higher sensitivity to this legislation by MNCs with more presence in tax havens.

Suggested Citation

  • Alessandro Chiari, 2024. "Do Tax Havens Affect Financial Management? The Case of U.S. Multinational Companies," Working Papers IES 2024/25, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2024.
    • Handle: RePEc:fau:wpaper:wp2024_25
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    File URL: https://ies.fsv.cuni.cz/en/do-tax-havens-affect-financial-management-case-us-multinational-companies
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    More about this item

    Keywords

    Tax Havens; Subsidiaries; U.S. Multinational Corporations; Share Buybacks;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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