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Standard theories of ownership assume insiders ultimately bear all agency costs and therefore act to minimize conflicts of interest. However, overvalued equity can offset these costs and induce listings associated with higher agency costs. We explore this possibility by examining a sample of public listings of Japanese subsidiaries. Subsidiaries in which the parent sells a larger stake and subsidiaries with greater scope for expropriation by the parent firm are more overpriced at listing, and minority shareholders fare poorly after listing as mispricing corrects. Parent firms often repurchase subsidiaries at large discounts to valuations at the time of listing and experience positive abnormal returns when repurchases are announced.

Deferral of U.S. taxes on foreign source income is commonly characterized as a subsidy to foreign investment, as reflected in its inclusion among "tax expenditures "and occasional calls for its repeal. This paper analyzes the extent to which tax deferral and other policies inefficiently subsidize U.S. direct investment abroad. Investments are dynamically inefficient if they consistently generate less in returns to investors than they absorb in new investment funds. From 1982-2010, repatriated earnings from foreign affiliates exceeded net capital investments by $1.1 trillion in 2010 dollars, and from 1950-2010, repatriated earnings and net interest from foreign affiliates exceeded net equity investments and loans by $2.1 trillion in 2010 dollars. By either measure, cash flows received from abroad exceeded 160 percent of net investments, implying that foreign investment over these periods was dynamically efficient.

This paper analyzes the effect of repatriation taxes on dividend payments by the foreign affiliates of American multinational firms. The United States taxes the foreign incomes of American companies, grants credits for any foreign income taxes paid, and defers any taxes due on the unrepatriated earnings for those affiliates that are separately incorporated abroad. This system thereby imposes repatriation taxes that vary inversely with foreign tax rates and that differ across organizational forms. As a consequence, it is possible to measure the effect of repatriation taxes by comparing the behavior of foreign subsidiaries that are subject to different tax rates and by comparing the behavior of foreign incorporated and unincorporated affiliates. Evidence from a large panel of foreign affiliates of U.S. firms from 1982 to 1997 indicates that 1 percent lower repatriation tax rates are associated with 1 percent higher dividends. This implies that repatriation taxes reduce aggregate dividend payouts by 12.8 percent, and, in the process, generate annual efficiency losses equal to 2.5 percent of dividends. These effects would disappear if the United States were to exempt foreign income from taxation.