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To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jfineco.2006.11.006 Byline: C. Fritz Foley (a), Jay C. Hartzell (b), Sheridan Titman (b), Garry Twite (c) Keywords: Cash; Taxes; Repatriation Abstract: US corporations hold significant amounts of cash on their balance sheets. This paper develops and tests the hypothesis that the magnitude of US multinational cash holdings are, in part, a consequence of the tax costs associated with repatriating foreign income. Consistent with this hypothesis, firms facing higher repatriation taxes hold higher levels of cash, hold this cash abroad, and hold this cash in affiliates that trigger high tax costs when repatriating earnings. In addition, less financially constrained firms and those that are more technology intensive exhibit a higher sensitivity of affiliate cash holdings to repatriation tax burdens. Author Affiliation: (a) Harvard Business School, Soldiers Field Road, Boston, MA 02163, USA (b) McCombs School of Business, University of Texas at Austin, Austin, TX 78712, USA (c) School of Finance and Applied Statistics, Australian National University, Canberra, ACT 2601, Australia Article History: Received 9 June 2005; Revised 24 October 2006; Accepted 20 November 2006 Article Note: (footnote) [star] The statistical analysis of firm-level data on US multinational companies was conducted at the International Investment Division, Bureau of Economic Analysis, US Department of Commerce under arrangements that maintain legal confidentiality requirements. The views expressed are those of the authors and do not reflect official positions of the US Department of Commerce. The authors thank an anonymous referee, Amy Dittmar, Linda Krull, Ed Outslay, Brad McPhail, John Robinson, Bill Schwert (the editor), Connie Weaver, and seminar participants at the 2006 American Finance Association Meetings, Australian Graduate School of Management, Chinese University of Hong Kong, the 2005 Tax Symposium at the University of North Carolina at Chapel Hill, and the University of Texas at Austin. We would also like to thank John Graham for supplying tax rate data. All errors are our own.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jpubeco.2005.04.004 Byline: Mihir A. Desai (a)(d), C. Fritz Foley (b)(d), James R. Hines (c)(d) Keywords: Tax avoidance; Multinational firms; Tax havens Abstract: What types of firms establish tax haven operations, and what purposes do these operations serve? Analysis of affiliate-level data for American firms indicates that larger, more international firms, and those with extensive intrafirm trade and high R and D intensities, are the most likely to use tax havens. Tax haven operations facilitate tax avoidance both by permitting firms to allocate taxable income away from high-tax jurisdictions and by reducing the burden of home country taxation of foreign income. The evidence suggests that the primary use of affiliates in larger tax haven countries is to reallocate taxable income, whereas the primary use of affiliates in smaller tax haven countries is to facilitate deferral of U.S. taxation of foreign income. Firms with sizeable foreign operations benefit the most from using tax havens, an effect that can be evaluated by using foreign economic growth rates as instruments for firm-level growth of foreign investment outside of tax havens. One percent greater sales and investment growth in nearby non-haven countries is associated with a 1.5 to 2% greater likelihood of establishing a tax haven operation. Author Affiliation: (a) Harvard Business School, Harvard University, Baker 265, Soldier Field Boston, MA 02163, USA (b) Harvard Business School, Harvard University, Baker 235, Soldiers Field Boston, MA 02163, USA (c) Department of Economics, University of Michigan 611 Tappan Street Ann Arbor, MI 48109-1220, USA (d) NBER, USA Article History: Received 27 July 2004; Revised 21 March 2005; Accepted 5 April 2005 Article Note: (footnote) [star] The statistical analysis of firm-level data on U.S. multinational companies was conducted at the International Investment Division, Bureau of Economic Analysis, U.S. Department of Commerce under arrangements that maintain legal confidentiality requirements. The views expressed are those of the authors and do not reflect official positions of the U.S. Department of Commerce. The authors thank Roger Gordon, Frederico Ravelli, two anonymous referees, and several seminar participants for helpful comments on an earlier draft, and the Division of Research at Harvard Business School for financial support.

The impact of effective intellectual property rights regulations on technology transfer, between multinational companies during 1982-1999, is examined.

Indirect taxes levied on multinational companies for their foreign direct investments, with respect to American multinational companies, is analyzed.

The causal factors of the partial ownership of the foreign affiliates of the U.S. multinational firms and the gradual decline in the use of joint ventures are investigated. The costs associated with split ownership and the advantages of international production coordination with proper tax planning are analyzed.

THE rising economic importance of multinational firms has been accompanied by significant changes in their structure and functioning. Multinational firms, historically characterized as webs of autonomous subsidiaries spread across countries, [...]