Questions for Individual Summary on Corporate Cash Holdings I eterminants: 1 Why

Question

Questions for Individual Summary on Corporate Cash Holdings I eterminants: 1 Why corporate cash holdings attracted a lot of attention in the last two decades? What is/are the main reason(s) for a substantial increase in the level of cash holdings in the U.S. compared to 1980s? What are the main firm characteristics that influence level of cash holdings? 2 How are differences in tax code of different countries contribute to MNC stocpiling cash? What are negative effects of MNC keeping cash abroad? 3 Briefly discuss the situation with Apple (EU decision, reland, United States and Apple management reaction) and most recent development. 4 How does national culture influence the amount of cash that firms in different countries hold?

Explanation / Answer

Question 1: There is an increase in the cash holdings in companies since the 1980's because of the recent economic depressions that have taken place. In the last decade, we had two large recessions. One in the years 2000-2001 when the Enron scam was unearthed and a lot corporate governance and accounting issues were highlighted and also again in 2007-08 when there was the sub-prime crises where loans were given without due diligence. These have put a fear among corporate who keep cash in cash in case such situations re-occur.

Question 2 : The high tax rates in US (like 35% corporate tax) are a disadvantage to businesses. So large corporations transfer excess cash to tax havens like Ireland and Luxemburg where there are no taxes and the tax payable in US is deferred until it is brought back. So higher corporate tax rates in the home country incentivises corporations to transfer their cash to tax havens

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