Repatriation Taxes and Foreign Cash Holdings: The Impact of Anticipated Tax Reform

We examine whether anticipation of a repatriation tax reduction affects the amount of cash U.S. multinational corporations (MNCs) hold overseas. We find that U.S. MNCs most likely to benefit from a repatriation tax reduction accumulated significant cash holdings once Congress proposed legislation, at the expense of reduced shareholder payouts, relative to firms unlikely to benefit. This behavior was accompanied by complementary activities designed to maximize expected tax benefits. We contribute to the literature on how firms respond to tax-induced incentives, provide a new explanation for U.S. MNC cash holding growth, and raise questions about the consequences of U.S. tax reform.