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

43 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
JournalAmerican Historical Review
Issue number2
StatePublished - Apr 1 2019

Bibliographical note

Funding Information:
The statistical analysis of firm-level data on U.S. multinational companies was conducted at the Bureau of Economic Analysis, U.S. Department of Commerce, under arrangements that maintain legal confidentiality requirements. The views expressed in the paper are those of the authors and do not reflect official positions of the U.S. Department of Commerce. We appreciate the suggestions and advice of Chris Anderson, Alice Bonaimé, Sergey Chernenko, Beverly Clingan, Laurent Fresard, Craig Furfine, Gustavo Grullon, Kathleen Kahle, Stephen Karolyi, Chris Parsons, Rene Stulz, Rohan Williamson, William Zeile, the referee, and the editor (David Denis) as well as seminar and conference participants at the American Finance Association, Dartmouth University, Federal Reserve Board of Governors, Florida State University, Georgetown University, Georgia Institute of Technology, Iowa State University, Louisiana State University, Midwest Finance Association, Northeastern University, Northwestern University, Ohio State, Rice University, the Securities and Exchange Commission, the Shanghai Advanced Institute of Finance, the Swiss Finance Institute, and the Universities of Alberta, Cincinnati, Illinois-Chicago, Illinois-UC, Iowa, Kansas, Miami, Notre Dame, Oklahoma, Pennsylvania, Pittsburgh, Oregon, San Diego, Southern California and South Carolina. The research assistance of Austin Magee, Sang Kim, and Mark Scovic is greatly appreciated. Kristine Hankins also thanks the Institute for the Study of Free Enterprise for financial support. Supplementary data can be found on The Review of Financial Studies Web site. Send correspondence to Mitchell Petersen, Northwestern University, National Bureau of Economic Research. E-mail: mpetersen@kellogg.northwestern.edu.

Publisher Copyright:
© 2019 The Author(s). Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com.

ASJC Scopus subject areas

  • History
  • Archaeology
  • Museology


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