Foreign Cash: Taxes, Internal Capital Markets, and Agency Problems

Jarrad Harford (First Author), Cong Wang (Participant Author), Kuo Zhang (Participant Author)

    Research output: Contribution to journalJournal

    31 Citations (Web of Science)


    When the fraction of a firm's cash held overseas is greater, its shareholders value that cash lower. This goes beyond a pure tax effect: the repatriation tax friction disrupts the firm's internal capital market, distorting its investment policy. Firms underinvest domestically and overinvest abroad. Our findings are more pronounced when firms are subject to higher repatriation tax rates, higher costs of borrowing, and more agency problems. Overall, our evidence suggests that a combination of taxes, financing frictions, and agency problems leads to a valuation discount for foreign cash and documents real effects of how foreign earnings are taxed.
    Original languageEnglish
    Pages (from-to)1490-1538
    JournalThe Review of Financial Studies
    Issue number5
    Publication statusPublished - 2017

    Corresponding author email

    Indexed by

    • FT
    • ABDC-A*
    • Scopus
    • SSCI


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