Earnings overseas and cash holdings

• Author(s): Nascimento, Madalena Correia Martins
• Date: 2015
• Persistent ID: http://hdl.handle.net/10362/15348
• Origin: Repositório Institucional da UNL
• Subject(s): Cash; Taxation; Liquidity; Risk
• Document Type: Master thesis
• Language: English
• Advisor(s): Cunha, Igor
• Contributor(s): RUN

Description

I investigate the impact of foreign pre-tax income on the total amount of cash held by companies and on the amount of cash that is held in companies’ foreign subsidiaries. I also investigate the impact of the existence and amount of cash held on companies’ foreign subsidiaries in the composition of cash holdings in terms of risk and liquidity. Using a sample of 100 largest U.S. non-financial and non-utilities companies I find that companies with higher earnings overseas present higher cash reserves and invest a higher fraction of their cash in risky assets. My evidence suggests that companies have a different optimization strategy for cash overseas, in which precautionary motives are not the main driver for holding cash.

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