Understanding the Rise in Corporate Cash: Precautionary Savings or Foreign Taxes

Michael W. Faulkender, Kristine W. Hankins, Mitchell A. Petersen

Research output: Contribution to journalArticlepeer-review

69 Scopus citations


What has driven the dramatic rise in U.S. corporate cash? Using non-public data, we show that the run-up is not uniform across firms but is concentrated in the foreign subsidiaries of multinational firms. Standard precautionary motives explain only domestic cash holdings, not these burgeoning foreign cash balances. Falling foreign tax rates, coupled with relaxed restrictions on income shifting, are the root of the changing foreign cash patterns. Firms with intellectual property have the greatest ability to shift income to low tax jurisdictions, and their foreign subsidiaries are where we observe the largest accumulations of cash. Received September 6, 2017; editorial decision August 22, 2018 by Editor David Denis. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Original languageEnglish
Pages (from-to)3299-3334
Number of pages36
JournalReview of Financial Studies
Issue number9
StatePublished - Sep 1 2019

Bibliographical note

Publisher Copyright:
© 2019 The Author(s) 2019. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved.

ASJC Scopus subject areas

  • Economics and Econometrics
  • Accounting
  • Finance


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