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Corporate Excess Cash Holdings and Tax Avoidance
Tsai, Lih Wen
Chen, Ming Chin
Tsai, Lih Wen
Excess Cash Holdings
Effective Tax Rates
Book Tax Differences
|Issue Date: ||2016-03-01 10:26:05 (UTC+8)|
|Abstract: || 本文以民國87年到103年我國上市櫃公司個別報表為樣本，實證研究發現租稅負擔愈重的公司，在「預防動機」下會傾向持有比較多的現金或超額現金，以作為日後稅款繳納的資金來源；此外，也發現愈有意圖以租稅規避節省稅款繳納的現金流出之企業，其留存的現金或超額現金持有部位也愈高。|
This study first examines the effects of tax avoidance on corporate excess cash holdings. The empirical result shows that, ceteris paribus, firms with higher effective tax rates tend to have greater excess cash holdings, which is consistent with the precautionary savings motive that financially-constrained firms proactively save more cash to pay future cash needs. In addition, firms which actively engaged in tax avoidance exhibit greater excess cash holdings.
This study then examines the relation between tax avoidance and the value of excess cash holdings. Following the Faulkender and Wang (2006) approach, this study uses excess equity returns to estimate the value of excess cash to equityholders. The result shows a negative relation between tax avoidance and the marginal value of excess cash holdings to equityholders, supporting the costly contracting hypothesis. Additional analysis reveals that firms engage in tax avoidance activities to minimize taxes and are likely to use excess cash holdings to retire debt, leading to a lower cost of debt.
Finally, based on the financial data of consolidated financial statements, the results also show that a positive relation between effective tax rates and the excess cash holdings, which is consistent with the transaction costs hypothesis that multinational corporations, to aviod repatriation taxes, retain cash holdings abroad and use that cash for overseas investments. Thus, tax avoidance is negatively related to excess cash holdings. In addition, based on the financial data of consolidated financial statements, the result also shows a negative relation between tax avoidance and the marginal value of excess cash holdings to equityholders. This result suggests that additional dollars of excess cash holdings arising from tax avoidance activities of multinational corporations are likely to be kept aborad to avoid the repatriation tax, rather than to be distributed to shareholders as an increase of cash dividend. Therefore, the stock market responds negatively to the excess cash holdings arising from tax avoidance.
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|Data Type: ||thesis|
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