An empirical investigation of the effect of imputation credits on remittance of overseas dividends |
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Authors: | Ming-Chin Chen Sanjay Gupta |
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Institution: | 1. Department of Accounting, College of Commerce, National Chengchi University, 116, Taipei 11605, Taiwan, ROC;2. Department of Accounting & Information Systems, Eli Broad College of Business, Michigan State University, East Lansing, MI 48824-1122, United States |
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Abstract: | Overseas dividend remittance is an important vehicle for multinational corporations (MNCs) to move funds among their global subsidiaries. Using firm-level data from 2001 to 2004 for Taiwan-based MNCs with subsidiaries in China, this paper provides empirical evidence on the effect of imputation credits on overseas dividend remittances. We find that imputation credits have a positive effect on increasing foreign dividend payouts, thereby reducing the efficiency loss induced by the tax cost for within-firm dividends of MNCs. We also document evidence that parent companies’ net fund flows from related-party transactions with their subsidiaries are negatively correlated with dividends repatriated from those affiliates, supporting the notion that transfer-pricing may be substituting for within-firm dividend remittance. Our results contribute to understanding the links between taxation and related-party transactions and subsidiary dividend repatriation decisions of MNCs. |
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