Wednesday, March 6, 2019
Jennifer Blouin (Wharton School, University of Pennsylvania) presents The Location, Composition, and Investment Implications of Permanently Reinvested Earnings (with Linda Krull (Oregon) & Leslie Robinson (Dartmouth) at UCLA today as part of its Colloquium on Tax Policy and Public Finance hosted by Jason Oh:
This study estimates the location, composition, and investment implications of permanently reinvested earnings (PRE) reported in U.S. multinational corporations’ (MNCs) consolidated financial statements. Our first set of analyses suggest that firms’ PRE designations are motivated by both financial reporting incentives (i.e., tax expense deferral) and investment opportunities. Our second set of analyses find that domestic investment by MNCs with PRE is less responsive to domestic investment opportunities and more sensitive to domestic cash flow than firms without PRE, consistent with PRE indicating internal capital market frictions. We conclude that financial statement users could benefit from enhanced disclosures about foreign operations.