"In this study, I investigate whether the expectation of a future reduction in repatriation tax costs affects the foreign investment decisions of U.S. multinational corporations (U.S. MNCs). I find that, during the period in which members of Congress proposed legislation for a switch to a territorial tax system, foreign subsidiaries of U.S. MNCs significantly increased capital investment activities, compared to the subsidiaries of non-U.S. MNCs in the same country. The increase in capital investment is concentrated among subsidiaries of U.S. MNCs that are subject to higher potential repatriation tax costs, and hence would benefit more from a potential reform. Furthermore, I do not find any evidence consistent with the alternative explanation that agency costs of excess cash holdings drive the increases in investment during this period. On the contrary, the increases in foreign investment activities are marginally greater among subsidiaries that are subject to lower agency costs. Together, these results suggest that the expectation of lower future repatriation tax costs has inadvertently incentivized U.S. MNCs to invest more abroad. My study contributes to the literature that examines firms' real investment responses to anticipated tax incentives and our understanding of the consequences of the recent U.S. tax reform."--Page ii.
Read
