Abstract
Abstract This study aims to examine the effect of exchange rate fluctuations and credit supply on the dividend repatriation policy of foreign subsidiaries of U.S. multinational corporations (MNCs) around the world. The difference generalised method of moments (GMM) estimator was applied to estimate the dynamic dividend repatriation model. The results suggest that the appreciation of host-country currency against the USD leads to higher dividend repatriation by the foreign subsidiaries of U.S. MNCs. Moreover, results reveal that higher availability of private credit in the host country results in lower dividend repatriation by the U.S. MNCs’ foreign subsidiaries.
Highlights
Dividend repatriation policy is the distribution decision of earnings between retained earnings and dividend repatriation by a foreign subsidiary to the parent company
This study aims to examine the effect of exchange rate fluctuations and credit supply on the dividend repatriation policy of foreign subsidiaries of U.S multinational corporations (MNCs) around the world
Robust standard errors are in parentheses except for Arellano-Bond tests for serial correlations and Hansen test of over-identifying restrictions, which are the p-values. *** p
Summary
Dividend repatriation policy is the distribution decision of earnings between retained earnings and dividend repatriation by a foreign subsidiary to the parent company. In contrast to dividend payout policy to diffuse shareholders, dividend repatriation policy involves additional issues such as repatriation taxes, exchange rate risk, parent company loans, the supply of credit in the host country, differential rates of return between the host and home country, and the parent company’s financing needs These factors, along with the traditional factors, are leading to the inefficient utilisation of funds, resulting in high accumulation of earnings by foreign subsidiaries. The findings of Hasegawa and Kiyota (2017) and Xing (2018) showed that, after moving to a territorial tax system from the worldwide tax system, Japanese foreign subsidiaries from low-tax countries did not significantly increase dividend repatriation to the parent companies in Japan This suggests that repatriation tax is not the sole reason for the high accumulation of foreign earnings and lower dividend repatriation by the MNCs. this study aims to examine the effect of non-tax factors such as exchange rate fluctuations and the supply of credit in the host country on the dividend repatriation policy
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