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​The Persistence and Pricing Implications of Changes in Multinational Firms’ Foreign Cash Holdings

Date/Time: 20-Sep-2017 1330hrs - 1500hrs
Venue: Executive Seminar Room 5 (S3.1-B1-07)
Contact Information:


Assoc Professor Kevin KOH

Using a hand-collected sample of U.S. multinational firms’ foreign and domestic cash holdings, we evaluate the association between changes in foreign and domestic cash and future earnings. Because the changes in the cash holdings are components of cash flows which itself is a component of current period earnings, a higher coefficient on the change in cash components is interpreted as higher earnings persistence. In contrast to the common belief that accumulating cash in foreign subsidiaries is suboptimal, we find that changes in foreign cash are as persistent for future earnings as changes in domestic cash. We further document that foreign cash changes are more persistent when foreign operations offer better growth opportunities and when repatriation taxes are lower. Next, we investigate whether investors efficiently price the earnings persistence implications of changes in foreign and domestic cash. Our results suggest that investors under-react to positive changes in foreign cash. Further, we find that investors’ under-reaction to positive foreign cash changes is more pronounced when foreign growth is higher and repatriation taxes are lower. Overall, our evidence suggests that retaining cash in foreign subsidiaries, on average, does not lead to lower future earnings. Our finding that investors under-estimate the persistence of positive changes in foreign cash is consistent with calls for more transparent disclosure on foreign cash and foreign operations
About the Speaker
Professor Terry Shevlin is a Professor of Accounting, Paul Merage Chair in Business Growth, Associate Dean of Research and Doctoral Programmes at the UCI Paul Merage School of Business. He earned his PhD from Stanford University in 1986 and joined the faculty at the University of Washington where he worked for 26 years until joining UCI in the summer of 2012. He has published over 45 articles in the very top accounting and finance journals. His research interests are broad and include the effect of taxes on business decisions and asset prices, capital markets-based accounting research, earnings management, employee stock options, research design and statistical significance testing issues. His teaching interests include financial accounting, taxes and business decisions, empirical research methodology.
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For further information and enquiries, please contact Adeline Tang at
Nanyang Business School, Nanyang Technological University, Block S3, 50 Nanyang Avenue, Singapore 639798

Published on: 14-Sep-2017

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