The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Dividends and Profits: Some Unsubtle Foreign Influences
Published: 06/01/1996 | DOI: 10.1111/j.1540-6261.1996.tb02698.x
JAMES R. HINES
American corporations earn a significant share of their profits from foreign sources, out of which they appear to pay dividends at rates that are three times higher than their payout rates from domestic profits. Why firms do so is unclear, although this behavior is consistent with the use of dividends to signal profitability. This payout behavior implies that a significant part of the U.S. tax revenue generated by the foreign profits of U.S. corporations arises through the taxation of dividends received by individuals, and that the cost of capital may be higher for foreign than for domestic operations.
A Multinational Perspective on Capital Structure Choice and Internal Capital Markets
Published: 11/27/2005 | DOI: 10.1111/j.1540-6261.2004.00706.x
MIHIR A. DESAI, C. FRITZ FOLEY, JAMES R. HINES
This paper analyzes the capital structures of foreign affiliates and internal capital markets of multinational corporations. Ten percent higher local tax rates are associated with 2.8% higher debt/asset ratios, with internal borrowing being particularly sensitive to taxes. Multinational affiliates are financed with less external debt in countries with underdeveloped capital markets or weak creditor rights, reflecting significantly higher local borrowing costs. Instrumental variable analysis indicates that greater borrowing from parent companies substitutes for three‐quarters of reduced external borrowing induced by capital market conditions. Multinational firms appear to employ internal capital markets opportunistically to overcome imperfections in external capital markets.