The Effect of Repatriation Taxes on Investment Efficiency
The Effect of Repatriation Taxes on Investment Efficiency
Date
2017-09-01
Authors
Amberger, Harald
Samuel, David M. P.
Markle, Kevin
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Abstract
This paper examines the effect of repatriation taxes on investment efficiency, which we define as a subsidiary's investment sensitivity to local growth opportunities. Based on a global sample of firms we provide evidence that subsidiaries invest less efficiently when their ultimate owner is resident in a worldwide tax system. We confirm our results using natural experiments in the UK and Japan, which both switched from a worldwide to a territorial tax system in 2009.
Our results suggest that repatriation tax costs reinforce agency conflicts, which distort firms' internal capital markets and lead to sub-optimal investment decisions.
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Repatriation Taxes,
International Taxation,
Internal Capital Markets,
Investment,
Agency Frictions,
Multinational Firms
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