The Effect of Foreign Cash Holdings on Internal Capital Markets and Firm Financing

Prior to 2018, U.S. repatriation taxes motivated companies to retain cash offshore.  Using confidential jurisdiction-specific data from the Bureau of Economic Analysis, we find that firms with high tax-induced foreign cash have approximately 3.3 percent higher domestic liabilities relative to other multinationals, equivalent to $152.2 million more domestic debt per firm, or approximately $98.9-$141.9 billion in aggregate.  We next examine motives for firms with tax-induced foreign cash to borrow domestically, finding this behavior is associated with shareholder payouts and some domestic investment spending. Finally, repatriations and intercompany loans from foreign subsidiaries act as substitutes and complements, respectively, to external borrowings.