Date of Completion

6-27-2016

Embargo Period

6-27-2016

Keywords

Repatriation, earnings management, foreign tax credit

Major Advisor

Amy Dunbar

Associate Advisor

John Phillips

Associate Advisor

Joseph Golec

Associate Advisor

David Weber

Associate Advisor

Steven Utke

Field of Study

Business Administration

Degree

Doctor of Philosophy

Open Access

Open Access

Abstract

I investigate a strategy through which firms take real actions to reduce tax expense to meet analysts’ forecasts. Specifically, I examine high foreign tax repatriations (HTRs) that decrease U.S. tax expense resulting in increased net income and cash flow. HTRs generate these benefits because the associated foreign tax credits (FTCs) exceed the U.S. tax on the repatriation. Using federal tax return information, I find evidence that firms make HTRs to meet or beat analysts’ forecasts. I also find evidence that some firms with capacity to claim the FTCs that increase earnings and cash flow choose to defer HTRs, consistent with building cookie jar reserves. Lastly, I find that firms do not disclose HTRs even when required by SEC rules. This study contributes to the earnings management and tax avoidance literatures and to my knowledge is the first study to examine a specific tax planning strategy through which firms engage in earnings management.

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