Search results

In view of the recent enhanced concerns of the SEC and PCAOB that Accounting Principles Board Opinion No. 23 (APB 23)–asserting firms do not comply with the “sufficient evidence” criteria of APB 23, we examine whether APB 23–asserting firms that declared their foreign earnings as permanently reinvested abroad are less likely to repatriate those foreign earnings under the American Jobs Creation Act (AJCA) of 2004, compared with similar non-asserting firms. The asserting firms are required to disclose sufficient evidence that validates an ability to meet their domestic cash needs with only earnings generated in the United States and their plans to indefinitely reinvest foreign earnings outside the United States. Estimates show that asserting firms are more likely to repatriate their foreign earnings than non-asserting firms. In addition, we find that the probability of making an election to repatriate permanently invested foreign earnings under the AJCA of 2004 is higher for firms with nonbinding foreign tax credit (FTC) limitations that have made an APB 23 declaration to permanently invest foreign earnings abroad. These findings suggest that asserting firms’ declarations to indefinitely reinvest foreign earnings abroad are not well grounded, thereby indirectly validating the SEC’s and PCAOB’s increased scrutiny for supporting evidence for APB 23 assertion. The estimates also show that the likelihood of making an election to repatriate foreign earnings under the AJCA of 2004 increases with asserting firms’ liquidity constraints and financial distress: the financial characteristics listed as part of APB 23 criteria of sufficient evidence and highlighted by the SEC and PCAOB comment letters, indicating that asserting firms raid permanently reinvested foreign earnings to satisfy their financial needs and constraints.

Prior studies document increased share repurchase activity after the temporary tax holiday under the American Jobs Creation Act (AJCA) of 2004. Our study examines the moderating effect of financial statement readability on share repurchases in response to a temporary reduction in repatriation tax. Building on prior literature, we argue that firms with excess cash overseas, despite the lack of investment opportunities, produce less readable financial statements to hide bad news. We find that firms with less readable financial statements initiated higher levels of share repurchases after the AJCA. Our results contribute to the existing literature showing (1) firms hold excess cash overseas mainly for tax reasons rather than for nontax reasons such as precautionary motives or empire-building concerns and (2) firms return excess funds to investors rather than squander the funds once the tax cost of repatriation is reduced. Firms that suffer from the overinvestment problem using hard-to-read financial statements to hide the bad news of a lack of investment opportunities are more likely to benefit from the tax cut. Our study provides timely evidence of potential firm response to the 2017 Tax Cut and Jobs Act, which permanently removes the repatriation tax.

The extent to which firms repatriate indefinitely reinvested foreign earnings (IRFE) has been a major issue in the US tax system. Congress enacted provisions in the 2017 Tax Cuts and Jobs Act (TCJA) specifically to remove tax barriers to repatriation. However, little is known regarding the repatriation of IRFE outside of the temporary tax incentive provided by the 2004 American Jobs Creation Act (AJCA). In this chapter, I provide evidence on such repatriations by identifying a sample of 67 firms from 2009 to 2015 that reverse the indefinite reinvestment designation of foreign earnings and announce a repatriation of foreign cash. In contrast to repatriations following the 2004 AJCA, I do not find evidence that a single economic factor, such as share repurchases, motivates the repatriation. Although, in general, I do not find evidence of a significant market response to the announcements, I find evidence of a negative market reaction to announcements by low foreign effective tax rate (ETR) firms without tax offsets, suggesting that the tax may not be fully priced. Overall, I provide insight into the reasons and implications of the announced repatriation of IRFE.

The purpose of this study is to understand the multiple aspects of readjustment of repatriates and to identify determinants relating to the readjustment, to enable MNEs (multinational enterprises) to utilize the advantages and retain the valuable knowledge that repatriates offer to the organization for talent management.

This study conducted a quantitative work involving questionnaire responses of 192 repatriates who returned to Japan after international assignments in MNEs.

Based on the results of the analysis using this Japanese data, the discussion is summarized in the following three points. First, it is important to seek determinants for the readjustment by focusing on all the aspects of ‘repatriation adjustment’ because the determinants of subordinate aspects are not always identical. Second, ‘organizational factors — work duties’ play a vital role in the readjustment to the organization different from the readjustment to daily life. Further, organizations benefit from providing assistance to both the repatriates and the family of the repatriates to ensure that they are able to successfully readjust to life in the home country.

This study performed a comprehensive analysis of the subordinate concepts of the ‘repatriation adjustment’ dividing it into four aspects of job and private life. Factors related to the readjustment were classified into three factors by using a framework that analyses issues repatriates face by classifying these into changes occurring over time and changes due to cultural differences, and show a logical framework that elucidates the repatriation adjustment factors.

I examine patterns of making or deferring strategic repatriations that firms can use to either meet analysts' forecasts or defer to maintain future reported earnings flexibility. First, I examine the extent to which firms repatriate earnings from high foreign tax subsidiaries to decrease US tax expense, resulting in increased net income and lower cash taxes. Using federal tax return information, I find evidence that firms strategically repatriate these earnings to meet or beat current analysts' forecasts. Next, I find evidence that firms that are able to obtain current year tax reductions defer these repatriations in an attempt to build cookie-jar reserves. Lastly, I find that firms do not disclose high foreign tax repatriations (HTRs), even when required by SEC rules. This study contributes to the earnings management, tax avoidance, and disclosure literature by examining a discretionary tax planning strategy.

Krull (2004) finds that US multinational corporations (MNCs) increase amounts designated as permanently reinvested earnings (PRE) to maximize reported after-tax earnings and meet earnings targets. We extend this research by examining the relationship between executive equity compensation and the opportunistic use of PRE by US MNCs, and the market reaction to earnings management using PRE designations. Firms use equity compensation to incentivize executives to strive for maximum shareholder wealth. One unintended consequence is that executives may engage in earnings management activities to increase their equity compensation. In this study, we examine whether the equity incentives of management are associated with an increased use of PRE. We predict and find strong evidence that the changes in PRE are positively associated with the portion of top managers' compensation that is tied to stock performance. In addition, we find this relationship to be strongest for firms that meet or beat forecasts, but only with the use of PRE to inflate income, suggesting that equity compensation incentivizes managers to opportunistically use PRE, especially to meet analyst forecasts.

Further, we provide evidence that investors react negatively to beating analysts' forecasts with the use of PRE, suggesting that investors find this behavior opportunistic and not fully convincing. This chapter makes an important contribution to what we know about the joint effects of tax policy, generally accepted accounting principles, and incentive compensation on the earnings reporting process.

South Korean multinational enterprises (MNEs) have developed rapidly since the late 1950s. This chapter investigates South Korean MNEs’ talent management, more specifically international recruitment and selection policies and practices in their Chinese operations.

Using the snowball method through Chinese and Korean networks we recruited ten Korean MNEs to participate in this research. We conducted semi-structured interviews with key individuals within the organisations.

It reveals that South Korean MNEs tend to adopt the polycentric approach or a mixed approach of being polycentric and ethnocentric to international staffing, with the number of expatriates reducing gradually over time. South Korean MNEs adopt ‘one-way selection’ in recruiting and selecting expatriates and localise recruitment procedures and selection criteria for host-country nationals.

South Korean MNEs have paid inadequate attention to: firstly, expatriates’ career development; and secondly, personal and family issues emerging from expatriation and repatriation. This study highlights these issues.

In this chapter we analyze how the designation of foreign earnings as “permanently reinvested” outside the US (PRE) is related to subsequent firm growth and market returns. Prior research suggests that firms that hold excess cash in foreign markets to avoid the US corporate income tax experience lower growth, since such “trapped” cash is inefficiently invested. However, foreign earnings can be inefficiently invested in forms other than cash. We hypothesize and find that as the ratio of PRE to total assets increases, firms' growth rates decline. Our results suggest that trapped earnings, and not just trapped cash, are associated with lower growth. Because PRE have also been associated with earnings management in the literature, we further analyze the association between the use of PRE to meet or beat earnings targets and subsequent growth, observing a significant and persistent negative association. Finally, we note that the market discount for PRE, and especially for the use of PRE to manage earnings, appears to be relatively small. Our results provide support for FASB's stated plans to increase disclosure requirements surrounding the tax accrual.

Purpose — Most managers seem dissatisfied with their careers after they return from expatriate assignments. The study aimed to identify the reasons for their dissatisfaction and distill implications for MNCs interested in improving the return on the investment they make on expatriation and harnessing the valuable knowledge with which many managers return after successful completion of expatriate assignments.

Methodology/approach — The data were collected via depth interviews with recently returned expatriates.

Findings — The level of dissatisfaction among returning expatriates is high and is attributable to a poorly managed HR function. While considerable sums are invested in transferring knowledge from home to host offices, MNCs seem curiously inattentive to the process by which their returning expatriates are reintegrated into the firm.

Practical implications — Managers' voices call for a strategically oriented HR function of MNCs and a new organisation for developing intellectual capital and a cadre of globally trained managers. Changes in structure, systems and processes are discussed.

Social implications — If MNCs continue neglecting the repatriation needs of their expatriates, and paying little or no attention to transferring their knowledge about international operations, U.S. companies are likely to lag in terms of utilising that knowledge to become more effective global organisations.

Originality/value of the chapter — Sources of dissatisfaction among returning expatriates are identified. Much of the dissatisfaction relates to the disconnect between expectations and reality, the failure of the mentor role and a lagging HR function. The chapter identifies steps to correct these problems.

Knowledge transfer is an important global leader (GL) competency, given their role as knowledge brokers and capacity builders. However, knowledge transfer skills and the transfer process itself have received scant attention from both global mobility and leadership scholars. Similarly, multinationals have seldom systematically collected and utilized repatriate knowledge, despite the competitive advantage it represents in a global knowledge economy. To fill this gap, an exploratory qualitative study employing critical incidents and interviews with a multi-country sample of 47 German, Japanese, and US repatriates identified variables that facilitate knowledge transfer attempts to the work unit. Our findings corroborate the proposed variables in a conceptual model of the transfer process and articulate the transfer skills that help explain their ability to transfer. Most importantly, our findings introduce an interactive transfer model that explicates the microprocess of transfer in the repatriate–work unit relationship. We conclude with implications for global leadership research and HRM practice.